Bridgewater Associates, managed by billionaire Ray Dalio, is one of the largest hedge funds in the world and in recent years has delivered above-average returns despite its massive size. We track Bridgewater’s quarterly 13F filings alongside those of hundreds of other hedge funds as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and can compare its filing for Q1 to the one showing its holdings from the beginning of the year. This allows us to pick out the stocks which Bridgewater added to its portfolio and consider those as initial investment ideas. Here are our thoughts on Bridgewater’s five largest new holdings by market value from the first quarter of 2013 (or see the full list of Dalio’s stock picks):
Credit: General Electric Company (NYSE:GE)
The fund reported a position of about 470,000 shares in $22 billion market cap communications company CenturyLink, Inc. (NYSE:CTL). CenturyLink is probably of the most interest to income investors: at current prices and dividend levels, its annual yield is just over 6%. We would note, however, that the company recently cut its quarterly dividend by about a third and even so its dividend payments are a very large share of its earnings- in fact, the valuation represents a trailing earnings multiple of 25- so further cuts are possible.
Dalio and his team bought about 610,000 shares of General Electric Company (NYSE:GE) after not having a position in the stock at the beginning of this year. General Electric Company (NYSE:GE) carries trailing and forward P/E multiples of 17 and 13, respectively, showing that both investors and the sell-side expect future earnings growth. We would note that while net income was up in the first quarter of 2013 versus a year earlier, revenue actually slipped by 3%. Billionaire Ken Fisher’s Fisher Asset Management had 30 million shares in its portfolio according to its own 13F (find Fisher’s favorite stocks).
The Walt Disney Company (NYSE:DIS) was another of Bridgewater’s new picks with the filing disclosing ownership of a little over 230,000 shares. The stock trades at 19 times earnings, even to slightly above where other large media and entertainment companies trade, though The Walt Disney Company (NYSE:DIS) has been growing nicely (revenue was up 9% in its most recent quarter compared to the same period in the previous fiscal year) and has a star asset in ESPN. We’d hesitate to recommend it over its peers, who in some cases have compelling special situations going on, but would be interested in a closer look at the industry.
According to the 13F, Dalio owned almost 360,000 shares of Expeditors International of Washington (NASDAQ:EXPD) as of the beginning of April. The $7.9 billion market cap logistics services company has been experiencing stable financial performance, which concerns us given the high valuation of the stock (it is priced at 19 times forward earnings estimates). We’re not sure what the fund is going for here, and certainly we would avoid the stock at least for now- this forward P/E actually represents a premium to peers such as UPS and FedEx.
Bridgewater initiated a position of about 110,000 shares in Boston Properties, Inc. (NYSE:BXP), a real estate investment trust focused on office properties in “luxury cities” such as Boston, the Manhattan borough of New York City, and San Francisco. Real estate investment trusts receive favorable tax treatment conditional on distributing a large share of taxable income to shareholders. While this often results in high yields, Boston Properties, Inc. (NYSE:BXP) currently offers investors a dividend yield of only 2.4% and so we aren’t sure it matches up that well with other income opportunities.
If there is a dividend play here we imagine it would be CenturyLink, Inc. (NYSE:CTL) though of course we’d first have to study the business’s fundamentals to ensure that its dividends will not decline too much going forward. Along with Boston Properties, we don’t consider General Electric Company (NYSE:GE) or Expeditors International of Washington (NASDAQ:EXPD) buys at this time given their combination of valuation and recent performance. As for The Walt Disney Company (NYSE:DIS), it does have attractive characteristics though it is trading more or less in line with industry peers.
Disclosure: I own no shares of any stocks mentioned in this article.