Bernard Horn‘s Polaris Capital Management recently filed its 13F with the SEC for the reporting period of June 30. Polaris Capital Management is a Boston-based global value investing firm founded by Mr. Horn in 1995. A proponent of value investing, Mr. Horn counts Fischer Black, co-author of the Black-Scholes equation and one of his professors at MIT’s Sloan School of Management in the late 1970’s, as being among the people who guided him towards that investing philosophy. According to the latest 13F filing, Polaris Capital Management’s U.S. public equity portfolio was valued at $814.82 million at the end of June, 13.78% more than the $716.09 million it was worth at the end of March. Continuing with what is now almost a tradition with value-focused hedge funds, Polaris Capital Management had an extremely low turnover of just 2.83% during the second quarter. The fund had nearly equal exposure to stocks from the technology, healthcare, and finance sectors, which accounted for 23%, 23% and 22% of its public equity portfolio respectively. The fund increased its stake in all three of its top holdings from the end of the first quarter — Teva Pharmaceutical Industries Ltd (ADR)(NYSE:TEVA), Infosys Ltd ADR (NYSE:INFY), and BHP Billiton plc (ADR)(NYSE:BBL) — and they continued to remain its top holdings in that order following the conclusion of the second quarter as well. Let’s analyze what makes Polaris Capital Management increasingly bullish on these companies.
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Polaris Capital Management increased its stake in its top holding Teva Pharmaceutical Industries Ltd (ADR)(NYSE:TEVA) by 34,200 shares during the second quarter. As of June 30, the fund owned almost 1.68 million shares of the company worth $99.28 million. After a rapid rise between mid-March and mid-April, shares of the Israel-based pharmaceutical company witnessed a continuous decline during the remainder of the second quarter, ending the quarter down by 4.6%. On July 27, the company announced that it would be acquiring Allergan PLC (NYSE:AGN)’s generic drug business in a $40.5 billion deal. Under the terms of the deal Teva Pharmaceutical Industries Ltd (ADR)(NYSE:TEVA) will be paying $6.75 billion in stock and $33.75 billion in cash to Allergan PLC (NYSE:AGN). The company declared better-than-expected second quarter results on July 30. EPS of $1.43 on revenue of $5 billion for the second quarter came in better than analysts’ consensus estimate of EPS of $1.27 on revenue of $4.7 billion. The company also raised its 2015 full-year EPS guidance to $5.15-$5.40, up from $5.05-$5.35. In the last few days several analysts have raised concerns over Pfizer Inc. (NYSE:PFE) entering an agreement with Synthon to acquire exclusive US commercialization rights of glatiramer acetate, which is the generic version of Teva Pharmaceutical Industries Ltd (ADR)(NYSE:TEVA)’s bestselling drug Copaxone. With a purchase of 15 million shares of the company during the January-March period, Andrew Feldstein and Stephen Siderow‘s Blue Mountain Capital became the largest shareholder of Teva Pharmaceutical Industries Ltd (ADR)(NYSE:TEVA) among the hedge funds covered in our database, as of the end of the first quarter.
Moving on to Polaris Capital Management’s second-largest holding, Infosys Ltd ADR (NYSE:INFY), the fund acquired an additional 165,600 shares of the company during the second quarter, holding over 5.6 million shares worth $88.81 million as of June 30. Shares of the India-based information technology services provider tumbled by 8.3% during the second quarter, with the majority of that decline coming after the company announced dismal fiscal 2014 fourth quarter results on April 24. On July 21, the company reported better than expected numbers for the fiscal first quarter of 2015. While revenue of $2.16 billion was above the $2.14 billion that analysts were expecting, EPS of $0.21 came in line with analysts’ estimates. On July 24, analysts at Macquarie upgraded their rating on the stock to ‘Outperform’ from ‘Neutral’. Among the hedge funds we track, Ken Fisher‘s Fisher Asset Management was the largest shareholder of Infosys Ltd ADR (NYSE:INFY) at the end of March, owning over 18 million shares of the company, a position which it added another 3.55 million shares to in the second quarter.
BHP Billiton plc (ADR)(NYSE:BBL) represented the stock in which Polaris Capital Management increased its stake by the greatest magnitude during the second quarter. The fund increased its stake in the company by 28%, bringing its total holding in the stock to 1.84 million shares worth $73.05 million as of June 30. Shares of the mining giant have dropped significantly since last year, and lost more than 10.6% in the second quarter alone, due to the slump in metal and oil prices and the slowdown of the Chinese economy, which is a major market for the commodities the company mines. BHP Billiton plc (ADR)(NYSE:BBL) reported last month that it will be booking a $2.1 billion earnings charge on account of the restructuring it did by spinning off its unwanted assets into a separate trading entity, South 32. On June 8 analysts at RBC Capital reiterated their ‘Underperform’ rating on BHP Billiton plc (ADR)(NYSE:BBL)’s stock and on July 7, analysts at Deutsche Bank reiterated their ‘Hold’ rating on the stock. Ken Griffin‘s Citadel Investment Group increased its stake by 475% to 157,563 shares of the company during the first quarter.
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