Google Inc (NASDAQ:GOOG), Cliffs Natural Resources Inc (NYSE:CLF), and Las Vegas Sands Corp (NYSE:LVS) are among billionaire Ray Dalio’s new stock picks during the second quarter. Bridgewater Associates, one of the world’s largest hedge funds yet still able to return 23% last year, primarily focuses on more macro-oriented investments but invests in individual equities as well. Many of these positions are disclosed on the fund’s 13F filing about six weeks after the end of each quarter (see what stocks Bridgewater Associates likes). According to the fund’s filing for the second quarter, here are some of the largest new stock positions that Ray Dalio and his team initiated between April and June 2012:
The fund bought about 250,000 shares of Cliffs Natural Resources (NYSE:CLF), a mining company that has been hit hard by low demand for iron ore and metallurgical coal: its stock is down 54% since a year ago. By this point, however, the company only needs to stop the bleeding in order to prove a good value investment. It trades at 4 times trailing earnings, and Wall Street analysts’ projections imply a forward P/E of 5. The company also increased its dividend recently and now offers a high dividend yield going forward unless continued sluggishness in the business forces them to cut it back. Apparently Bridgewater is confident that the industry will not continue to deteriorate, and that Cliffs is thus a good value. Carlson Capital owned a small number of shares in the company at the end of March and increased its stake to 1 million shares over the course of the quarter.
Bridgewater also initiated a position in Las Vegas Sands (NYSE:LVS), buying about 270,000 shares. Las Vegas Sands owns several casinos across Las Vegas, Macau, and Singapore. It too has struggled recently: earnings dropped 41% last quarter compared to the same period in 2011 and the stock is down 11% from a year ago against a rising market. By buying in Bridgewater is signaling some degree of confidence in U.S. and Chinese macro. In this they are in agreement with the sell-side, whose earnings estimates turn a trailing P/E of 25 into a forward multiple of 16 and a five-year PEG ratio of 0.9. Fellow billionaire Ken Fisher’s Fisher Management was another buyer of the stock during the second quarter.
The third largest new company stake in Bridgewater’s portfolio according to the filing was about 210,000 shares of Honeywell. The diversified industrial company produces aerospace components, environmental controls, and performance materials. Honeywell’s stock price is up this year, but has underperformed the market despite good numbers in its last quarter (revenue rose 4% and earnings increased 11% compared to the same quarter the previous year). This, like Las Vegas Sands, is another company where Bridgewater and Wall Street analysts are on the same page: not a good value today (trailing P/E of 20) but with strong growth ahead of it (forward P/E of 12, five-year PEG of 1).
Technology giant Google Inc (NASDAQ:GOOG) was another new stock pick for Bridgewater. The fund only bought about 20,000 shares for a position worth over $11 million. Google trades at 20 times trailing earnings but only 14 times forward earnings estimates, as analysts expect it to continue its strong growth. Earnings were up 11% last quarter compared to a year ago despite Google’s size, and it has further growth prospects in tablets and smartphones. The stock was trading down this year until recently, and is still about flat for the year compared to a rising NASDAQ. Google Inc (NASDAQ:GOOG) also ranked in our ten most popular stocks among hedge funds for the second quarter.
Bridgewater’s new stock positions, with the exception of Cliffs Natural Resources (NYSE:CLF), seem to be based on thinking that optimistic sell-side earnings estimates are right and the wary market is wrong. Cliffs, in turn, is the fund trying to catch a falling knife: the iron ore and metallurgical coal industries are down but probably not going to get much worse, and as long as they don’t the stock is a buy based on its valuation.