So far this year seems to be following suit. The largest 10 positions in Bridgewater’s 13F portfolio delivered a return in line with the market performance since the beginning of 2012. On a weighted average basis, these 10 positions returned 11.98%, 5 basis points higher than the S&P 500’s 11.93% for the same period.
| Company Name | Ticker | value | YTD Return |
| SPDR S & P 500 ETF TRUST | SPY | 2622737 | 12.0% |
| VANGUARD INTL EQUITY ETF | VWO | 1144681 | 12.3% |
| ISHARES TRUST | EEM | 804457 | 12.1% |
| ISHARES TRUST | LQD | 35490 | 1.5% |
| JOHNSON & JOHNSON | JNJ | 27622 | 0.6% |
| B M C SOFTWARE INC | BMC | 26960 | 21.8% |
| DELL INC | DELL | 26671 | 12.5% |
| VALERO ENERGY CORP NEW | VLO | 25061 | 20.8% |
| TESORO CORP | TSO | 23863 | 11.3% |
| ORACLE | ORCL | 23172 | 13.6% |
Ray Dalio’s strength is macro investing. He uses ETFs to gain broad exposure to the stock market or to hedge his other bets. The largest four positions of his 13F portfolio are ETFs. Johnson & Johnson (JNJ), the largest non-ETF position in his portfolio, however, is the worst performing stock among the top 10 positions. It returned just 0.58% since the beginning of this year, underperforming the market by over 11 percentage points. The reason for the relatively poor performance of the stock is large due to the company’s announcement of weak fourth-quarter results.
For the three months ending January 1, 2012, the company reported net income of $218 million, or $0.08 per share, versus $1.94 billion, or $0.70 per share for the same period a year earlier. But we believe this is a one-time thing as the company generated revenue of $16.3 billion during that period, versus $15.6 billion for the same period a year ago. The main reason for the lower net income was its abnormally high operating expense. Johnson & Johnson had about $500 million in unusual expenses. It also spent more money in research and development, which will benefit the company in the future.
Analysts expect Johnson & Johnson to make $5.1 per share in 2012 and $5.44 per share in 2013, versus $5 per share for the trailing 12 months. Over the long term, the company’s earnings are expected to grow at about 6.3% per year. Therefore, Johnson & Johnson has a forward P/E ratio of 12.8. In comparison rival Abbott Laboratories (ABT) has a forward P/E of 12.2 and Bristol Myers Squibb Co (BMY) has a forward P/E of 17.2.
Johnson & Johnson also has an attractive dividend yield of 3.49%. It has been increasing its dividend payments for almost 50 consecutive years. With a relatively low payout ratio of 64% and stable growth, we believe the company will be able to continue to raise its dividends in the future. Billionaire Warren Buffett is also bullish about Johnson & Johnson. As of December 31, 2012, his Berkshire Hathaway had nearly $2 billion invested in this stock.
BMC Software Inc (BMC) is the best performing stock on the list above. It returned 21.75% so far this year, beating the market by nearly 10 percentage points. We are optimistic about the cloud computing market and we believe BMC will benefit from the growing interest in cloud computing. We are also optimistic about the company’s strategy of expanding itself through acquisitions.
The company has made a number of acquisitions to improve its product offerings over the past few years. It acquired MQSoftware, Tideway Systems and Phurnace Software in 2010 for a total of about $94 million. These three companies all had leading positions in their own segments. BMC is expected to make $2.76 per share this year and $2.97 per share in 2013. The company’s forward P/E ratio is about 13.44, a discount to the industry average of 21.18. It also has a double-digit expected growth of 10.83% per year.
We think BMC is a good deal right now with its relatively low multiples and its strong estimated earnings growth in the near future. Hedge funds seem to agree. Together with Bridgewater, 24 of the almost 400 hedge funds we track reported BMC in their 13F portfolios at the end of last year, including Jim Simons Renaissance Technologies. It had nearly $100 million invested in BMC at the end of 2011.
Dell Inc (DELL) and Valero Energy Corp (VLO) have also outperformed the market so far this year, while Tesoro Corp (TSO) slightly underperformed the market by 0.63%. We like these three stocks. Like most other tech stocks and energy stocks, they all have very appealing valuation levels. All of them have P/E ratios of below 10 and stable mid-single-digit growth rates.
Overall, we like Dalio’s top stock picks. Even though the return of these positions was not stunning compared with the market so far this year, we believe they are good investments over the long term.
