About UTIMCO
What is UTIMCO and why in the world should you care?
While it’s difficult for me to answer the latter question on your behalf, UTIMCO (University of Texas Investment Management Company) is the endowment manager that oversees around $32 billion worth of investments geared toward generating returns and benefiting the entities it serves, namely Texas A&M and the university I proudly attend, the University of Texas at Austin (however, our team would like to point out that UTIMCO also does oversee and manage funds for other University of Texas locations across the state).
Although the University of Texas and UTIMCO are of special interest to me for obvious reasons, they are also one of the country’s largest university endowment managers. They have a lot of investments and a diversified stock portfolio to say the least, holding equity positions in companies stateside and overseas as well.
Before digging into some of their larger recent holdings and performing some analysis on these companies, a shout out is in order.
I’d like to express gratitude to UTIMCO, its employees, managers and money managers it works with to help the university I attend grow and offer more resources to its students, faculty members and facility managers. I truly appreciate the work they do.
Now onto what you came for, some of the more sizeable investments within a recent report from the endowment manager’s portfolio.
However, before diving headfirst into some of their investments we feel the need to mention that just because one major money manager holds a considerable amount of stock in a certain company doesn’t mean that you should blindly invest in the same companies or instruments yourself. UTIMCO’s investment objectives are in many ways different than yours. They are responsible for providing steady, predictable returns for the entities it manages money for, not beat the market ten times over by making speculative bets on the direction of GameStop stock.
Not that we’re all Redditors, but you get the point.
Ultimately, the point of our team saying this is that although UTIMCO’s investment managers are likely extremely well-versed in finance, portfolio optimization and simply sizing up and selecting good investments for the long run, do your own research on companies and their stocks and make sure to do what is best for your financial situation.
Onto the stocks!
As we peered through UTIMCO’s Permanent University Fund’s 2021 Schedule of Investments, we noticed the fund owns a considerable amount of Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG) stock. This isn’t really surprising as both of these companies are, from our perspectives, some of the safest, long-term stocks to hold as long as the earth is still rotating. Nevertheless, you should do your own research on these companies and their current and future corporate strategies while simultaneously understanding that just because these stocks are seen as safe, doesn’t mean they are immune to economic downturns, recessions or other macro-pressures.
Now, let’s see which other stocks hold some considerable real estate in the manager’s stock portfolio (as of their recent report).
1. Ashland Global Holdings (NYSE: ASH)
Prior to this article, our team had never heard of Ashland. However, in essence they are a huge chemical company that specializes in additives and specialty ingredients for products of what it seems like all categories around the globe. It makes sense that the company has research and development labs and manufacturing sites all over the world. Now, that you have a basic concept of what the company does and the line(s) of business it’s engaged in, let’s run through some numbers.
Their balance sheet is relatively strong with around $6.6 billion in total assets and nearly $3.7 billion in total liabilities. Their total revenue has been consistent at around $2 billion over the last five years and the company currently has a price-to-earnings (P/E) ratio of nearly 54, which implies that the current share price is quite overvalued.
The company’s trailing twelve month (TTM) net profit margin is also noticeably lower than that of the industry average and their returns on equity, assets and investment are all lower (by wide margins) than the industry average too.
Overall, the company’s financials seem steady but their ability to generate profits and returns are not as high as we’d like.
However, it might make sense for UTIMCO to own a considerable amount of shares in the company given its relatively stable financials and somewhat predictable business outlook.
2. Berry Global Group (NYSE: BERY)
Berry is an Evansville, Indiana-based plastic packaging marketer and manufacturer. As our team took a gander at the company’s website, it suddenly became clear that this company has a lot to offer. Specifically, they offer an assortment of products from trays and tubes to dispensers and drinking cups and a lot more.
As of this publication the company’s P/E ratio is 8.77, implying that its current share price is significantly undervalued. Moreover, their balance sheet is fairly strong with their total assets outweighing total liabilities (however, not by the widest of margins), and their total revenue has been generally climbing over the past five years, which is usually a good sign!
Finally, their TTM net profit margin is pretty much in line with the industry average.
From a strictly financial standpoint, our team likes Berry for its vast array of product offerings and its relatively stable financials.
Our team was initially concerned with the fact that most of their products are likely massively impacted by changes in commodity prices and labor costs, however given their total revenue and their ability to turn a profit similar to that of the competition, our initial concerns have been largely allayed, although no company in their category is by any means completely immune to external pressures.
3. Illumina (NASDAQ: ILMN)
Illumina is another company that we’ve never heard of prior to this article, however the company is engaged in some pretty interesting work.
Specifically, they manufacture and market systems that analyze genetic variation and biological function.
That’s a lot of stuff our team knows absolutely nothing about.
However, we do like to think we a know a thing or two about finance and numbers.
As it relates to Illumina’s numbers, the company currently maintains a P/E ratio of just north of 49 which implies that the stock at its current share price is overvalued. However, from a more fundamentally driven perspective, the company’s balance sheet is stellar as its total assets outweigh its total liabilities by around $10 billion.
Additionally, Illumina’s total revenue according to their income statement has been steadily rising over the past five years and their TTM net profit margin stands at approximately 14% higher than the industry average.
That’s impressive.
Finally, it should also be noted that among various sources on the internet, reputable financial institutions have the company’s target share price pegged at around $425 while the current share price sits at around $200.
Someone’s bullish about the company and it doesn’t appear to just be UTIMCO.
4. Salesforce (NYSE: CRM)
Now for a company our team is a tad more familiar with, one of the leaders (if not the leader) in the customer relationship management (CRM) industry, Salesforce.
The company essentially helps companies of all types and industries connect with its current customers and find new customers and sales leads as well. Interestingly, they also own an army of companies that likely play a huge role in their current and future success. To list a few, Salesforce owns Datorama, Tableau, ClickSoftware Technologies and a platform I’ve used a lot in college so far by the name of Slack.
All of these acquisitions seem strategic in nature, as most of these platforms play a big role in technology, data aggregation and other things that help Salesforce best serve its clients.
While the company’s share price currently appears grossly overvalued with a P/E ratio of nearly 267, Salesforce has quite a lean balance sheet, strong revenue growth in recent history and positive cash flow over the past five years as well.
Based solely on these metrics, the company appears to be pretty strong and well-equipped to keep gaining market share organically and inorganically, through acquiring more technology and data companies.
5. Uber (NYSE: UBER)
Lastly, one of UTIMCO’s larger stock holdings (as of a recent report) is a company most if not all of our viewers are likely familiar with, Uber Technologies, commonly referred to as Uber.
The well-known rideshare technology company (among other things) has reportedly engaged in partnerships with the University of Texas in the past, collaborating on sky taxis (no, we’re not kidding, it’s as cool as it sounds).
At its core, Uber is a technology company that engages in various businesses. For instance, Uber has lines of business in mobility, delivery and freight. My team and I are most familiar with the company’s prominent rideshare service as well as its food delivery platform, Uber Eats. The company also has dipped its toes into the freight and shipping industry with its launch of Uber Freight in 2017.
Unsurprisingly, Uber Freight is pretty much the original version of Uber (rideshare) but for shipments of goods and materials instead of people and food from a restaurant. In essence, our understanding is that available drivers are able to pick up and transport loads they so choose.
While we would argue that Uber is one of the most innovative, interesting companies in the world, what matters is how solid their numbers are.
For starters, the company like many of its competitors (if not all) is not profitable yet. Specifically, the industry’s TTM net profit margin is nearly -9% while Uber’s net profit margin is around -40%.
It feels like it’ll be a long, long time until this company is profitable. However, let’s consider some other financials that drive the company (pun intended).
Specifically, the company’s balance sheet is decent, neither good nor bad with total assets standing at around $39 billion to their total liabilities of just over $24 billion. Their total revenue has been increasing (for the most part) over the past five years and according to their cash flow statement, their net income has been in the red each year (except 2018) over the past five years.
We’re not too concerned about their negative net income given the amount they’ve likely reinvested in their platform and technology throughout the years.
However, in addition to their abysmal net profit margin, the company’s TTM returns on equity, assets and investment are all much lower than that of the industry average, which isn’t anything to write home about.
While they manage a seemingly popular platform, the company’s road to profitability is a long and winding one and many of their core financials aren’t as promising as we hoped.
Should you buy what UTIMCO buys?
As history has shown, endowment funds strive to generate solid, dependable long-term returns for the entities, organizations and universities they invest on behalf of. However, sometimes in certain economic landscapes it pays to just not lose money.
Endowment investing is interesting in its own right and we think investors of all levels should stay curious as to how others invest and keep a close ear to the markets in general.
All in all, this isn’t the average “we give the company a “buy” or “sell” rating” article, it’s more of a “you shouldn’t necessarily buy what UTIMCO or what any other investment manager is investing in but you should stay curious about where cash is being deployed” article.
DISCLAIMER: This analysis of the aforementioned investment manager and related stock securities is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding publicly traded entities.