Granite Value Capital’s investment strategy looks to own 35 to 40 of the most attractive companies regardless of company size or domicile (located in the U.S. or outside the U.S.). We like to say the “world is our oyster” for selecting investments. With the U.S. stock market, as measured by the S&P 500 Index, selling at a P/E ratio of 19.8 and about a 30 percent premium to non-U.S. stocks, non-U.S. stocks as a whole look more attractive. During the second quarter we established a position in Sanofi—a leading French based healthcare company that we think is undervalued.
Sanofi has a wide ranging portfolio of drugs, vaccines and consumer products that focuses on oncology, diabetes and cardiovascular disease. They have an attractive pipeline and an above average business. As a result, we believe Sanofi is worth 20 times cash earnings or about $56 per share. We bought the company in both of our equity investment strategies on May 12th for $39.36—at 70.4 percent of our estimated intrinsic value. The above chart compares our estimated intrinsic value versus its stock price since 2005—when they merged with Aventis. We think there is a good chance Sanofi’s stock price and estimated intrinsic value will converge over the next few years and we will be rewarded with an attractive return.
We think long-term investment success is achieved by following a disciplined value based investment process. We also think the odds of investment success increases when you select investments from a broader universe that includes non-U.S companies. We currently have about 13 percent of our equity holdings in non-U.S. companies. Given the extreme valuation differential between U.S. and non-U.S. companies, do not be surprised if over the next few quarters we increase our holdings in non-U.S. companies like Sanofi.
The above post has been excerpted from a recent letter of Granite Value Capital.
This newsletter contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves the potential for gains and the risk of losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Any information prepared by any unaffiliated third party, whether linked to this newsletter or incorporated herein, is included for informational purposes only, and no representation is made as to the accuracy, timeliness, suitability, completeness, or relevance of that information. Granite Value Capital, LLC is an SEC registered investment adviser with its principal place of business in Hanover, NH. Granite Value Capital and its representatives are in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which Granite Value Capital maintains clients. Granite Value Capital may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. This newsletter is limited to the dissemination of general information pertaining to its investment advisory services. Any subsequent, direct communication by Granite Value Capital with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Granite Value Capital, please contact Granite Value Capital or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).