Insider Monkey tracks quarterly 13F filings from hundreds of hedge funds, including billionaire Ray Dalio’s huge hedge fund Bridgewater Associates, and Microsoft Corporation (NASDAQ:MSFT) is a regular player. We’ve found that the information in these filings can be useful in developing investment strategies; for example, the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). We can also go through our database of filings and see which stocks individual funds have owned over the long term. Read on for our thoughts on the three largest positions in Bridgewater’s portfolio in its most recent 13F which the fund also had at least $15 million invested in at the end of March 2011 (or see the full list of Dalio’s stock picks over time).
The fund has long had Microsoft Corporation (NASDAQ:MSFT) as one of its top picks and owned1.4 million shares at the end of the first quarter of 2013. Microsoft Corporation (NASDAQ:MSFT)’s fiscal year ended in June, with the company earning $2.58 per share for the year. The company’s report, which included a significant earnings miss, disappointed the market, sending the stock down after what had been a very strong H1 performance. That earnings per share figure means that Microsoft now trades at 12 times trailing earnings.
Another large technology company Bridgewater has liked over the last couple years is Oracle Corporation (NYSE:ORCL). Oracle’s revenue was flat in its last fiscal year (which ended in May) compared to the previous one, with growth in software offsetting declines in the smaller hardware and services portions of its business. Operating and net income were up slightly on lower costs, though special items also contributed. As with Microsoft Corporation (NASDAQ:MSFT), Oracle Corporation (NYSE:ORCL)’s trailing earnings multiple is moderately low at 14 and with the company using a large share of its cash flow from operations on buybacks it might be worth doing further research on the company.
Dalio and his team reported a position of about 230,000 shares in The Walt Disney Company (NYSE:DIS) in the filing. In Disney’s most recent quarterly report, revenue was up 10% versus a year earlier; the media and entertainment company grew sales and operating income in all four major segments, including reversing a loss in studio entertainment. Media networks, by far the largest source of operating income for the company, grew its segment profit by 8% as ESPN and other assets in that area continue to be gems for Disney. Overall earnings were up about 30%, and while that rate is not sustainable (having been partly fueled by the recovery of the film business) the company’s prospects seem healthy.
Disney carries trailing and forward P/Es of 20 and 16, respectively, which is about in line with where other large media and entertainment companies trade. Assuming that the company can hold its margins about steady on the strength of its brand and grow revenue (and therefore earnings) at a mid to high single digit rate going forward, that valuation seems about fair. As such Disney wouldn’t appear to be an attractive growth stock unless the company proves able to generate higher growth rates through some combination of increasing its appeal in developing countries and its success in maximizing the strength of Lucasfilm and Marvel in their appropriate markets as they have done with Disney Princesses.
Microsoft Corporation (NASDAQ:MSFT) and Disney are closely enough followed companies that investors will probably be aware if their price falls enough or their business prospects improve enough that they become attractive value picks. Oracle offers both reasonable multiples and a decent chance that the company will be able to sustain its current business going forward even if further margin increases are not in the cards, and so at least at this point would appear to be worth a closer look.
Disclosure: I own no shares of any stocks mentioned in this article.
