David Blood & Al Gore’s Top Stocks: eBay Inc, Danaher, Henry Schein

David BloodDavid Blood (former chair of Goldman Sachs Asset Management) and Al Gore co-founded Generation Investment Management in 2004 to invest in socially and environmentally responsible companies with strong corporate governance. Partly due to these big names, and partly due to the fund’s appeal to left-leaning investors, Generation Investment Management had about $6 billion in AUM in early 2011. Generation Investment Management doesn’t recommend or endorse any of the stocks or analysis in this article, and we have no relationship with the fund, but based on SEC filings these are our opinions of what they are thinking. Read on to see the fund’s largest reported positions at the end of the second quarter, according to its 13F, or compare them to previous filings.

Henry Schein Inc (NASDAQ:HSIC) was Generation’s largest holding, with 4.5 million shares. This was slightly down from the 4.7 million shares the fund had reported owning at the end of March. The company provides medical equipment, primarily for dental purposes, and healthcare management software. It has reported low growth in recent quarters and trades at moderate P/E multiples in the mid- to high-teens on both a trailing and forward basis. Henry Schein Inc (NASDAQ:HSIC) is also a favorite of Robert Caruso’s Select Equity Group.

Generation reported owning 6.3 million shares of Danaher Corporation (NYSE:DHR), up from 6 million at the end of the first quarter. Danaher provides measurement instruments in a variety of markets, including electronics, environmental studies, life sciences, and dentistry. In its most recent quarter, Danaher Corporation (NYSE:DHR) experienced high revenue growth compared to the same period in 2011 but shrinking margins brought its earnings down. Its $37 billion market capitalization puts it at a trailing P/E of 16 and, based on analyst estimates, a forward P/E of 15.

The third largest reported position in the fund’s portfolio was eBay Inc (NASDAQ:EBAY), though here Generation cut its stake to 6 million shares from the 7.4 million it had reported three months earlier. We covered eBay, which also owns online payments company PayPal, last month. eBay’s trailing and forward P/E multiples are both 16, reflecting pessimism about the company’s growth from both the market and sell-side analysts. So far this year eBay Inc (NASDAQ:EBAY) is up about 40%.

Becton Dickinson and Co (NYSE:BDX), a medical devices and diagnostics company, is another top holding. Generation reported owning 2.7 million shares of the company at the end of June, a drop from the 3.5 million in the fund’s portfolio at the beginning of the second quarter. Becton Dickinson and Co (NYSE:BDX) is another medical technology stock facing market skepticism- the stock has fallen over the last year versus a rising market- and therefore priced at potential value levels: its trailing P/E multiple is only 14. The company also pays a moderate dividend yield of 2.4%.

Generation’s fifth largest holding according to its 13F was revenue and customer management services company Amdocs Limited (NYSE:DOX). Amdocs is another stock which could have a value thesis going for it, with a forward P/E of only 11 and good earnings growth in its most recent quarter. The fund slightly increased its stake in the company from 4.8 million shares to 5.1 million. Year to date Amdocs Limited (NYSE:DOX) is up about 12% and has tracked the S&P 500 very closely.

Strikingly, Generation’s top five positions for the second quarter were the same as the fund’s top five positions for the first quarter, and carried the same rank order in the portfolio. The fund does claim to be a long-term value investor, and it looks like it is sticking to its advertising. Of course, Generation does have a heavy concentration in healthcare technology stocks, which is notable on its own merits but also seem to be out of favor with the market. Perhaps the fund therefore feels it needs to be patient in order to generate profits on these investments.

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