Among GuruFocus’ model portfolios, the one that has recorded the best returns since its inception in 2006 is the Most Broadly Held model portfolio. Since inception, this model portfolio has returned a cumulative 392.12%. Over the past 10 years, it has averaged a return of 12.92% per year compared to the S&P 500’s 9.90% per year.
The Most Broadly Held model portfolio consists of the top 25 stocks that appear most frequently in gurus’ portfolios. It is rebalanced every 12 months, and if the number of guru owners is equal, the stocks are ranked based on which has the higher concentration (i.e., takes up a greater percentage of portfolios).
The smart money tends to flock to stocks that have proven their success over the long term, so it is no surprise most of the names that make it into this model portfolio are those with many years of outperformance, such as Apple (AAPL, Financial) and Berkshire Hathaway’s Class B shares (BRK.B, Financial). Hedge funds and pensions are further incentivized to stick with stable performers because regulators and clients tend to dislike the potential for huge drawdowns. As a result of these factors, the Most Broadly Held portfolio typically consists of the “best of the best” of the S&P 500, plus the occasional non-U.S. stock that fund managers see big value in, like Taiwan Semiconductor Manufacturing (TSM, Financial).
According to the GuruFocus All-in-One Screener, three of the Most Broadly Held stocks have fallen to within 15% of their 52-week lows as of this writing: Alphabet Inc. (GOOG, Financial)(GOOGL, Financial), UnitedHealth Group Inc. (UNH, Financial) and Johnson & Johnson (JNJ, Financial). Could these stocks represent value opportunities, or are they facing down the potential for long-term declines? Let’s take a look.
Disclaimer: The information regarding guru holdings comes from 13F filings and mutual fund reports. Investors should be aware 13F reports and mutual fund reports do not provide a complete picture of a guru’s holdings. The 13F reports include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. The mutual fund data is sourced from the quarterly updates on the website of the fund(s) in question. This usually consists of long equity positions in U.S. and foreign stocks. However, even these limited reports can provide valuable information.
Alphabet
Google’s parent company Alphabet Inc. (GOOG, Financial)(GOOGL, Financial) was trading around $94.65 per share on March 8, which was 13.47% above its 52-week low. The GF Value chart rates the stock as significantly undervalued.
As of the most recent regulatory filings, 51 gurus held voting shares of Alphabet while 48 held voting shares, though some of these overlap with the gurus owning both voting and non-voting shares. The gurus with the largest stakes in voting shares of Alphabet are Ken Fisher (Trades, Portfolio), Primecap Management and Dodge & Cox, while those with the largest stakes in non-voting shares are Dodge & Cox, Primecap Management and Baillie Gifford (Trades, Portfolio). Gurus have been buying and selling the stock in equal measure in recent quarters after being net sellers from 2019 through 2021.
Alphabet derives most of its revenue from ads, especially ads integrated into its leading search engine Google, its Maps application and YouTube. Amid declines in advertising spending as the economy slows down, the company has seen its earnings per share trend down, taking the stock price with it.
The good news is, as long as Google can maintain its search engine dominance and continue to diversity its revenue streams with its Cloud business, artificial intelligence and moonshot projects such as self-driving cars, the long-term outlook seems promising. As with any tech stock, there is a chance competitors could disrupt Alphabet, but the more money a company has to throw into research and development, the more likely it is to maintain control of superior technologies – and there are few companies in the world that can claim to have more money than Alphabet, which had $113 billion in cash on hand as of the end of 2022 and $29 billion in debt.
UnitedHealth Group
Shares of major U.S. health insurer UnitedHealth Group (UNH, Financial) traded around $469.29 apiece on Wednesday, which was 4.06% above the stock’s 52-week low. According to the GF Value chart, the stock is modestly undervalued.
UnitedHealth appeared in the portfolios of 37 gurus as of the latest regulatory filings. The top guru shareholder of the stock was the Vanguard Health Care Fund (Trades, Portfolio), followed by Dodge & Cox and Andreas Halvorsen (Trades, Portfolio). Gurus have been net sellers of the stock for the past five quarters, but most of the sells were reductions.
UnitedHealth Group is the largest managed care company in the U.S. by revenue. It offers a variety of health care products and insurance services through its many subsidiaries and has a powerful tailwind due to the aging population in the U.S. Growth in recent years has been driven by growth in Medicare Advantage plans, which are government-subsidized private versions of Medicare.
UnitedHealth has gotten a lot of negative press because of a court ruling that the government is allowed to recoup Medicare Advantage overpayments that resulted from health insurers artificially inflating prices. According to a 2017 Government Accountability Office report, the government made more than $16 billion in improper payments under Medicare Advantage in fiscal 2016 alone. As of 2022, UnitedHealth plans comprised 28% of the Medicare Advantage market. Fortunately for UnitedHealth investors, 28% of $16 billion is nothing for a company that brought in revenue of $322 billion in 2022.
Johnson & Johnson
Pharmaceutical giant Johnson & Johnson (JNJ, Financial) traded around $152.98 per share on Wednesday, which was just 1.15% above its 52-week low. The GF Value chart assigns the stock a modestly undervalued rating.
There were 35 gurus who held shares of Johnson & Johnson as of the latest regulatory filings, with Ken Fisher (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and Jeremy Grantham (Trades, Portfolio) making the top of the list. Gurus have been selling the stock more than buying it in recent years, though the majority of the sells have been reductions. When we look at the volume of buys versus sells rather than the number, gurus have become net buyers of the stock since mid-2021.
Johnson & Johnson’s wide-ranging business touches on most aspects of health care, from vaccines and drugs to consumer health care, hygiene, medical devices and cutting-edge medical technology. It combines a slow but steady acquisition-boosted growth strategy with a focus on shareholder returns, making the list of Dividend Kings with more than 50 consecutive years of dividend growth. As of this writing, the stock boasted a 2.93% dividend yield.
Johnson & Johnson’s stability comes from its incredible diversification in terms of products and geographies. It continues to make value-added acquisitions such as Abiomed, a world leader in heart recovery, and expand growth efforts in emerging markets. While rapid growth for this company is unlikely, continued slow growth combined with a strong dividend seems a strong possibility.
