Sarah Ketterer's Top 5 New Buys

- By Sydnee Gatewood

Causeway Capital Management leader Sarah Ketterer (Trades, Portfolio) revealed 10 new positions when she released her first-quarter portfolio earlier this week.

• Warning! GuruFocus has detected 7 Warning Signs with LIN. Click here to check it out.
• LIN 15-Year Financial Data
• The intrinsic value of LIN
• Peter Lynch Chart of LIN

The guru's Los Angeles-based firm, which she founded in 2001 with Harry Hartford, says on its website that it seeks to achieve superior risk-adjusted returns by investing in mispriced equities in both developed and emerging markets.

Based on these criteria, Ketterer's top five new buys for the quarter were Linde PLC (LIN), Merck & Co. Inc. (MRK), Gerdau SA (GGB), the iShares MSCI Emerging Index Fund (EEM) and Telefonica Brasil SA (VIV).

Linde

The guru invested in 7.8 million shares of Linde, allocating 13.94% of the equity portfolio to the stake. The stock traded for an average price of $165.92 per share during the quarter.

The U.K.-based chemical company has a $101.54 billion market cap; its shares traded around $186.84 on Thursday with a price-earnings ratio of 15.02, a price-book ratio of 2.01 and a price-sales ratio of 4.05.

The Peter Lynch chart shows the stock is trading near its fair value.

GuruFocus rated Linde's financial strength 6 out of 10, driven by adequate interest coverage. The Altman Z-Score of 2.38, however, indicates the company is under some fiscal pressure.

The company's profitability and growth scored a 7 out of 10 rating. Although the operating margin is in decline, it still outperforms 90% of competitors. In addition, Linde is supported by strong returns, consistent earnings and revenue growth, a moderate Piotroski F-Score of 6, which implies operations are stable, and a business predictability rank of three out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 8.2% per year.

Ketterer is now the company's largest guru shareholder with 1.45% of outstanding shares. During the quarter, Steven Cohen (Trades, Portfolio) also established a position in the stock, while Pioneer Investments (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Diamond Hill Capital (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies and Bernard Horn (Trades, Portfolio) added to their holdings.

Merck

Ketterer picked up 1.7 million shares of Merck, dedicating 1.46% of the equity portfolio to the stake. Shares traded for an average price of $78.33 during the quarter.

The pharmaceutical company, which is headquartered in Kenilworth, New Jersey, has a market cap of $204.58 billion; its shares were trading around $79.46 on Thursday with a price-earnings ratio of 25.05, a price-book ratio of 7.51 and a price-sales ratio of 4.88.

According to the Peter Lynch chart, the stock is overvalued.

Merck's financial strength was rated 6 out of 10 by GuruFocus. Despite recording an operating income loss and issuing approximately $75 million in new long-term debt over the last three years, the company has sufficient interest coverage and the Altman Z-Score of 4.01 suggests it is in good fiscal standing.

The company's profitability and growth scored a 7 out of 10 rating, boosted by an expanding operating margin and a high Piotroski F-Score of 7, which indicates business conditions are healthy. Merck also has a one-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per year.

Of the gurus invested in Merck, the Vanguard Health Care Fund (Trades, Portfolio) has the largest stake with 0.70% of outstanding shares. Stanley Druckenmiller (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) also established positions during the quarter, while John Buckingham (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) beefed up their holdings.