Blue Ridge Capital is a $7 billion fund run by a key Julian Robertson protégé, John Griffin. The fund has made an average return of 17.83% over the past three years on investments focused on the technology and services sectors. With that in mind, it’s not surprising that Griffin has added stocks from those sectors to his portfolio according to his latest 13F filing with the SEC. Let’s take a look at five of those new positions and whether they will contribute to Griffin’s success at picking winners.
The first is Realogy Holdings Corp (NYSE:RLGY), in which Griffin bought 5.2 million shares for a market value of $220,290,000. Realogy offers real-estate services such as relocation, title and settlement services, real-estate franchise services and owns real-estate brokerages such as Century 21, Caldwell Banker and Southeby’s International . Since going public last October at $27 per share, the stock has gained another $23 in price. On the downside, the percentage of sales devoted to the cost of goods sold rose 2% to 51% in the most recent quarter despite a 15% increase in revenue. However, the longer-term outlook for Realogy remains bullish, and analysts recommend a buy for the stock as it continues to capitalize on gains in the housing market.
Virgin Media Inc. (NASDAQ:VMED), another addition to the Blue Ridge Capital equity portfolio, was acquired by Liberty Global for $47.87 per share earlier this year, a 25% gain over the closing price before the deal was announced. Due to the fact that Blue Ridge added Virgin Media Inc. (NASDAQ:VMED) to its portfolio during the fourth quarter of 2012 when the stock was still trading below $40 per share, it’s safe to assume that Griffin realized a nice profit off his 4.6 million shares. Since trading to a new high of $47.70, the stock is under pressure from profit taking. Analysts maintain that Virgin Media Inc. (NASDAQ:VMED) is no match for British Sky Broadcasting, which dominates the pay TV and fixed-line telephone markets. However, Virgin Media Inc. (NASDAQ:VMED) is priced much more attractively than Sky, and its debt-to-equity ratio of 1.9—versus 3.7 for Sky—makes Virgin the better buy.
The most notable thing about the next new addition to Blue Ridge’s equity portfolio is that there exist only a handful of businesses that are able do the same thing. IHS Inc. (NYSE:IHS) provides “vital” technical information to capital-intensive companies. This is, apparently, a difficult sector to enter and this barrier to entry is probably why IHS trades as well as it does despite being priced very expensive to the rest of this sector. But revenue growth is up to $1.5 billion for 2012 from $1.3 billion in 2011 and sales devoted to COGS is down from 42% to 40%, which is why the stock has a buy recommendation from most analysts with an upside trading range of $112.50 to $114.00 a pop.
Sally Beauty Holdings, Inc. (NYSE:SBH) enjoys a market that has limited competitors offering the same professional grade beauty supplies to non-professional consumers. Blue Ridge Capital picked up 4.765 million shares of Sally Beauty last quarter and has already realized a 26% profit on the stock since the first of the year. The stock appreciated following a bullish earnings report—revenue was up 4.7% and EPS was up $0.03—but it’s starting to come down off its high of $27.87 on profit taking, presumably speaking.
Finally, there is Workday Inc (NYSE:WDAY), which offers human capital management such as payroll services, financial management and analytics applications. Workday has had a nice run–up over the past month, but there are worrisome signs of fatigue in the stock both technically and from a fundamental standpoint. Although revenue has been improving, analysts are concerned that the sluggish rate of revenue gains points to a deceleration in growth. Equally as worrisome, sales devoted to COGS has deteriorated from -$80 million to -$119 million. Workday also faces stiff competition from SAP AG (ADR) (NYSE:SAP) and others, all of whom are better positioned for the larger client than Workday is marketing itself toward.
With the exception of Workday, the new additions to Blue Ridge Capital’s equity portfolio should contribute to the continued growth in the fund. These recent picks offer few surprises to the overall strategy of the fund to stick with the technology and services sectors. Our guess is the Blue Ridge will increase their position in Realogy and HIS, as these stocks have the best potential for additional gains. Others like Workday and Sally Beauty have probably had their best days behind them for the near future.