Wary of Forthcoming U.S Recession, John Burbank Sold Off These 5 Stocks in Q1

John Burbank, head of San Francisco-based global investment firm Passport Capital, sounded the alarm concerning a possible contraction of the U.S and Chinese economies in a May 5 investor letter. The fund manager believes that debt levels in both countries have risen to an unsustainable extent, and that in the case of the U.S, the central bank has limited power and tools to rectify the situation through prudent monetary policy. With this view of an imminent economic downturn, Mr. Burbank sold off some of Passport Capital’s salient holdings during the first quarter, according to the firm’s latest 13F filing. We’ll take a closer look at these moves in this article and what may have prompted Mr. Burbank to jump ship.

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Martin Marietta Materials, Inc. (NYSE:MLM)

Firstly, Passport Capital disposed of 300,000 shares of the $11.68 billion supplier of construction materials during the January-to-March period. Considering that Martin Marietta Materials, Inc. (NYSE:MLM)’s stock price has risen by nearly 37% so far this year, the move could be a mix of both profit taking and Mr. Burbank’s glum economic outlook, as discussed above. The company’s gross profit margin excluding freight and delivery revenue increased by about 70% to 19.7% in the first quarter. Tom Russo‘s Gardner Russo & Gardner is bullish on Martin Marietta Materials, Inc. (NYSE:MLM), with a holding to 2.10 million shares, having increased it by 1% during the March quarter.

Union Pacific Corporation (NYSE:UNP)

The Omaha-based railroad company that provides a vital link in the supply chain of about 20 western states has seen its stock price appreciate by 6.25% on a year-to-date basis, but that wasn’t enough to stop Passport Capital from liquidating its entire Union Pacific Corporation (NYSE:UNP) holding of 805,000 shares. Transportation stocks are extremely sensitive to growth, something which Mr. Burbank is clearly rather pessimistic about, and considering the trend in the carloads and intermodal units this year compared to 2015, it appears to be justified. In mid-May, that number was hovering around the 500,000 mark, while last year it stood at about 550,000. By delivering an EPS of $1.16 for the first quarter, Union Pacific Corporation (NYSE:UNP) managed to beat analysts’ consensus estimate by $0.06, though its revenue of $4.83 billion was $70 million short of expectations and marked a 13.9% fall on a year-over-year basis. D E Shaw, founded by veteran investor David E. Shaw, cut its stake in the company by 76% to just under 794,000 shares during the first three months of this year.

We’ll look into three more stocks sold off by John Burbank during the first quarter on the next page.

Syngenta AG (ADR) (NYSE:SYT)

Moving on, Passport Capital sold all of its 1.2 million Syngenta AG (ADR) (NYSE:SYT) shares during the first quarter, after having just initiated the position in the fourth quarter of 2015. The stock of the $36.4 billion agribusiness is trading nearly sideways since the start of January. The company expects a melange of factors, including unfavorable weather, low commodity prices, and tight credit conditions in the agricultural sector to adversely affect its future profitability. Moreover, a stronger dollar and a slide in its Latin American business segment during the first quarter led to a fifth-consecutive quarter of declining sales, which stood at $3.74 billion in the first quarter after a 7% year-over-year fall. Syngenta does have a suitor in the form of China National Chemical Corp, which offered to buy the Switzerland-based company for $43 billion in February and has now extended its offer until July, with the possibility of further extensions until November. Robert Emil Zoellner‘s Alpine Associates sees upside to this saga, as it initiated a position amounting to 1.42 million Syngenta AG (ADR) (NYSE:SYT) shares during the first quarter.

Netflix, Inc. (NASDAQ:NFLX)

A total of 550,020 Netflix, Inc. (NASDAQ:NFLX) shares were slashed from Passport Capital’s equity portfolio during the first quarter. If the equity market turns south, the growth stocks are the ones that are hit the hardest, which gives some perspective to Mr. Burbank’s move. Netflix posted first quarter earnings of $0.06 per share on revenue of $1.96 billion, beating EPS estimates by $0.10, but missing revenue estimates by $10 million. The company had 81 million members at the end of March, which was also lower than analysts’ expectations. With about 18 million Netflix, Inc. (NASDAQ:NFLX) shares valued at $1.84 billion in its portfolio, Chase Coleman‘s Tiger Global Management is the largest stockholder of the company in our database.

Delta Air Lines, Inc. (NYSE:DAL)

Passport Capital’s Delta Air Lines, Inc. (NYSE:DAL) holding consisted of 1.7 million shares on December 31 and represented 1.43% of the value of the firm’s portfolio before being liquidated in the first quarter. Following the downtrend in the airlines industry, Delta’s stock has also slumped this year, by more than 14%. Moody’s recently assigned a Baa3 issuer rating to the company’s credit, with a stable outlook, meaning upward movement is unlikely for some time. Alex Snow’s Lansdowne Partners trimmed its stake in Delta Air Lines, Inc. (NYSE:DAL) by 1% to 25.99 million shares during the first quarter.

Disclosure: None