As a new filing with the Securities and Exchange Commission showed, Jean-Marie Eveillard‘s First Eagle Investment Management has increased its stake in DURECT Corporation (NASDAQ:DRRX) to 13.13 million shares. The passive stake that accounts for 11.54% of the company’s common stock was increased from 10.71 million shares the fund held at the end of 2014.
DURECT Corporation (NASDAQ:DRRX) is a nano-cap pharmaceutical company that develops specialty drugs based on its proprietary drug delivery technology platform. For the last year, the company posted a revenue growth to $19.4 million from $15.3 million a year earlier and a net loss of $22.1 million, wider than $21.5 million in 2013. On the back of the results, the company’s stock surged and is currently up by over 110% since the beginning of the year, although over the last 52 weeks it gained only 10%, which is significantly below the specialy & generic drug manufacturers’ industry return of 41%.
First Eagle initiated a stake in DURECT Corporation (NASDAQ:DRRX) during the first quarter of 2012 and initially held 1.94 million shares. However, as the stock almost doubled since the end of March 2012, the fund significantly increased its exposure to the company. Another investor that is bullish on Durect Corporation is healthcare-focused Broadfin Capital, led by Kevin Kotler, which holds 4.40 million shares as of the end of 2014. However, due to the small size of the company, in the equity portfolios of all funds that we track the stake in DURECT Corporation (NASDAQ:DRRX) represents a very small percentage of total value.
First Eagle has a very large equity portfolio that is valued at more than $41 billion as of the end of 2014 and contains over 350 positions. The investor prefers to hold stakes in Technology, Materials, Finance, Energy, and Consumer Discretionary stocks, which amass around 80% of its equity portfolio, but it also invests smaller amounts in other sectors, such as Healthcare, about which we are going to talk next. Therefore, according to its last 13F filing, First Eagle held around 7% of its equity portfolio in Healthcare stocks, the majority of which are large-cap companies. Three largest healthcare positions held by the fund as of the end of last year are represented by Actavis plc (NYSE:ACT), Valeant Pharmaceuticals Intl Inc (NYSE:VRX), and Johnson & Johnson (NYSE:JNJ).
First Eagle (and other large money managers) prefer to invest in large-cap companies because they provide steady returns over the long-term, even though these gains cannot always beat the market. Our backtests of a portfolio of 50 most popular stocks among hedge funds (which are represented by large-cap stocks) showed that these stocks underperformed the market by an average of 7.0 basis points per month. Moreover, equity hedge funds returned 4.8%, 11.1% and 1.4% during 2012, 2013, and 2014 respectively. These returns are very low compared to the S&P 500 ETF (SPY)’s gains of 16%, 32.3%, and 13.5% respectively. On the other hand, we determined that immitating most popular small-cap picks among hedge funds is much more profitable. Our strategy based on a portfolio of 15 small-cap stocks returned 28.2% in 2014, 53.2% in 2013, and 33.3% in 2012.
Nevertheless, let’s take a look at First Eagle’s largest holdings in healthcare sector. All three companies are from the pharmaceutical industry, which is not surprising taking into account that the pharmaceutical stocks had an average return of 40% over the last 52 weeks, which is one of the highest gains across all industries. On the first spot is Actavis plc (NYSE:ACT), in which First Eagle disclosed a $302.86 million position that contains 1.18 million shares. During the fourth quarter the investor raised its stake by 58%. The move coincides with Actavis plc (NYSE:ACT) stepping up to acquire Allergan for $66 billion. The transaction was completed earlier this week, after both shareholers and the European Commission approved the acquisition. First Eagle also held 634,500 shares of Allergan at the end of 2014, up by 624,500 shares on the quarter. Actavis plc (NYSE:ACT)‘s stock slightly outperformed the industry average and advanced by 45% over the last year. Among over 700 funds that we track, Actavis plc (NYSE:ACT) is one of the favorite stocks and one of the company’s largest shareholders is Andreas Halvorsen’s Viking Global, which upped its stake by 80% on the quarter to 4.59 million shares held as of the end of 2014.
In Valeant Pharmaceuticals Intl Inc (NYSE:VRX), First Eagle owns 1.19 million shares, valued at $170.56 million. Valeant’s stock also performed well over the last year, gaining 53%. The company tried to acquire Allergan last year together with Bill Ackman’s Pershing Square, but after the deal fell through, it went after Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP). After a bidding war with Endo Pharmaceuticals, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) came as a winner with an offer of $173 per share in cash, which was raised by 10% from the initial bid. Salix’s board has already stated that it supports Valeant’s offer and Endo Pharmaceuticals, which offered $175 in cash and stock said that it would withdraw its bid. Together with Actavis, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is one of the most popular healthcare stocks among the funds that we track and it is one of the favorite stocks of Jeff Ubben of ValueAct Capital, which owns 19.38 million shares as of the end of 2014.
And then there is Johnson & Johnson (NYSE:JNJ), in which First Eagle holds 1.62 million shares worth $169.08 million. Johnson & Johnson (NYSE:JNJ) is one of the largest pharmaceutical companies and due to its size its stock posted a modest 8% gain over the last 52 weeks. Moreover, Johnson & Johnson pays a quarterly dividend of $0.70 and with an yield of 2.73% it is one of the favorite so-called “dividend aristocrats” among the funds that we track. However, the last round of 13F filings showed a significant cooldown of investors’ enthusiasm as the number of funds holding the stock decreased over the quarter to 76 from 78, but the value of capital held by these funds slumped to $49.83 billion, from over $60 billion a quarter earlier. Nevertheless, Johnson & Johnson (NYSE:JNJ) remains one of the top picks of billionaire Ken Fisher’s Fisher Asset Management, which owns 10.42 million shares as of the end of 2014.