Tweedy, Browne Company LLC, an investment management firm, published its “International Value Fund” fourth quarter 2021 investor letter – a copy of which can be downloaded here. A portfolio quarterly return of 5.14% was recorded by the fund for the fourth quarter of 2021, while its benchmark, the MSCI EAFE Index, by comparison, returned 4.21% for the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Tweedy Browne Company, in its Q4 2021 investor letter, mentioned Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) and discussed its stance on the firm. Founded in 1989, Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is a Boston, Massachusetts-based biopharmaceutical company with a $63.2 billion market capitalization, and is currently spearheaded by its CEO, Reshma Kewalramani. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) delivered a 13.17% return since the beginning of the year, while its 12-month returns are up by 14.48%. The stock closed at $248.52 per share on March 16, 2022.
Here is what Tweedy Browne Company has to say about Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) in its Q4 2021 investor letter:
“Portfolio activity during the quarter was relatively modest, and mostly on the sell side, taking advantage of the market’s advance to trim or sell positions that were trading at or above our estimates of their underlying intrinsic values. In terms of newly established positions, there were only two, (including) Vertex Pharmaceutical, a US-based pharma company specializing in therapies for cystic fibrosis (Value Fund). Both of these companies at purchase were trading at substantial discounts from our estimates of their underlying intrinsic values, and, in our view, are financially strong and well positioned for future growth.
Vertex Pharmaceutical, which was purchased by the Tweedy, Browne Value Fund in mid-November 2021, is a biotechnology company that specializes in rare diseases/orphan drugs. The company’s current strength is in the treatment of cystic fibrosis, where its therapies are the gold standard of care globally. Analysts expect that Vertex will be able to maintain its dominant position in the treatment of this disease, which afflicts 83,000 people worldwide, largely due to the effectiveness of its therapies, the fact that patent expirations for its drugs are a long way off into the future (2030-2037), and the lack of effective competition. This affords Vertex pricing power for its drugs, as there are currently no good alternative therapies. Assuming the company receives complete international and pediatric approvals, Vertex’s portfolio of approved drugs would be eligible to treat 90% of the people who have this disease. Vertex’s therapies are also not one and done drugs, but rather start in early childhood and continue throughout the patient’s lifetime. The company’s strong cash flow, in our view, should support the company’s development of even better next generation drugs to treat cystic fibrosis as well as diversify its drug pipeline to treat other rare diseases. However, many of these treatments are on the horizon or are in their incipient stages of development.
In the quarter just prior to the Fund’s initial purchase of Vertex, knowledgeable insiders, including the company’s CEO and its lead independent director, purchased millions of dollars of the company’s stock at prices higher than we paid for the Fund’s shares. The company itself also repurchased approximately $642 million worth of its shares in the 3rd quarter at or around the same prices paid by the CEO and lead director ($195 per share). We estimate the company’s underlying intrinsic value to be in the range of $240 to $250 per share, and we believe that estimate is well supported by current, here-and-now cash flow, operating income and earnings per share. Morningstar and Goldman Sachs have valued the company at substantially higher prices than our estimate of $240 – $250 per share. The Fund’s weighted average cost in the stock is $187. At initial purchase, the company was trading at approximately 14 times current earnings, and 9.9 times enterprise value to earnings before interest and taxes.”
Our calculations show that Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) was in 61 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 55 funds in the previous quarter. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) delivered a 17.71% return in the past 3 months.
In March 2022, we also shared another hedge fund’s views on Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
