Ray Dalio: Electronic Arts, Kroger Among This Billionaire’s Top Bets

BRIDGEWATER ASSOCIATESRay Dalio founded Bridgewater Associates in 1973, but gave up his official CEO title in 2011. Now Dalio serves as a “mentor” and continues to serve as co-CIO. Bridgewater manages only institutional money, around $120 billion, having returned around 23% in 2011. The uniqueness of Bridgewater lies in the firm’s culture, driven by utter transparency. We researched Bridgewater’s recent 13F filing, which reports publicly traded equity positions from the end of September, and noticed the firm made notable increases in various retail stocks. These retailers include grocers, auto parts and other specialty stores. See all the stocks that Bridgewater loves here.

The first retailer on our list is The Kroger Co. (NYSE:KR). Bridgewater increased its shares by 24% from 2Q. Kroger is a U.S. grocery store chain that is expected to continue its strong performance with sales forecasted to be up 7% in 2013 on the back of same store sales growth of 4%. Longer-term earnings are expected to grow by almost 10% annually for the next five years. Part of what will drive these increases will be Kroger’s initiative for growth, expected to boost capital spending by $200 million to fuel square footage increases and to enter new markets. Trading at a 24x trailing P/E, the grocer is near the top end of the industry, but its 10x forward P/E suggests investors are under-appreciating its shares.

O’Reilly Automotive Inc (NASDAQ:ORLY) and AutoZone, Inc. (NYSE:AZO) were two of the largest increases for Bridgewater, at 146% and 177% respectively, from 2Q. AutoZone trades at only 16x earnings, while O’Reilly is at 20x, and both companies are expected to grow five-year earnings at 16% annually. Driving the strong future performance of each auto parts company will be an increasing age of vehicles on the road and the continued need for maintenance.

O’Reilly is expected to see sales up 7.5% in 2013, following a 6.8% gain by the end of 2012. O’Reilly’s growth will come from 5% same-store sales growth and new store openings of almost 200. AutoZone is expected to grow 2013 sales much the same as O’Reilly at 7.2%, with 4% same-store sales growth and over 200 new store openings. Despite their similarities, we like AutoZone the best, as this auto parts company is trading the cheapest with a sub-1.0 PEG ratio, while O’Reilly has a PEG nearly 40% higher. AutoZone is also a top pick in the hedge fund industry (see how many billionaires are buying this stock).

Bed Bath & Beyond Inc. (NASDAQ:BBBY) had the largest share increase in Dalio’s portfolio of our five retail stocks listed, at +214% from Q2. The specialty retailer is relatively flat year to date, but saw two large one-day stock price drops this year, one of around 15% and the other 10%. Bed Bath & Beyond still trades at 14x earnings, above Kirkland’s and Pier 1 Imports at 12x earnings. Even so, Bed Bath & Beyond’s forward P/E of 11.5x and its historical P/E of 16x suggest that investors are still over-discounting the retailer’s future earnings. Sales are expected to be up 16% in 2013 as key acquisitions, including Cost Plus and Linen Holdings, help boost the company.

Electronic Arts Inc. (NASDAQ:EA) saw Bridgewater increase its stake by over 60% during the third quarter. The video game company has been struggling of late, as shares are down almost 30% year to date. A fundamental change in gaming, one that is transitioning to online and social, is expected to continually put pressure on revenues. With 2013 revenues predicted to be down 7% after a 9% fall in 2012, it’s hard to be too bullish on EA from a top line standpoint.

One bright spot is the company’s projected 30% 2012 growth in digital revenues, which includes online and mobile games. What will continue to be a drag on EA is the high-teens drop in sales for it retail stores, but at a sales multiple below 2.0X, we could have a value play on our hands. This valuation is well below Activision’s P/S of 3.5x, but above Take-Two’s of 1.0x. Legendary activist investor Carl Icahn made a sizable investment in EA’s top competitor Take-Two; see all of Icahn’s latest stock picks here.

To recap: we believe Kroger will continue to perform well regardless of its economic backdrop, and the two auto parts companies we’ve discussed will also show near term strength as the average age of road vehicles continues to escalate, with AutoZone being the best value play. Bed Bath & Beyond operates in the increasingly competitive retail space that Amazon has been infringing upon, but we believe the company should continue to perform well with a diverse store mix that includes other stores that are Christmas-themed and baby-themed, including the higher end World Market chain. Additionally, investors can find better values in the gaming industry and may be better off by looking at Activision or Take-Two before going all-in on EA. Check out billionaire Ray Dalio’s latest 3Q stock picks.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!