Al Gore’s political career spanned decades. During his tenure in Congress and later as the Vice President, he was one of the first politicians to publicly champion environmental issues.
He brought attention to concerns around global warming in the 1980s, and he facilitated a 42-nation conference on balancing global economic development with environmental priorities in 1990. Throughout the 1990s, Gore promoted environmental education and attempted to persuade lawmakers to recognize the urgency of climate change.
When Gore left politics in 2001, he didn’t abandon his number one passion. In fact, he turned his attention to preventing climate change and encouraging sustainability full time. He is rewnowned for the documentary An Inconvenient Truth, which was released in 2006 and rapidly rose to become the fourth-highest-grossing documentary of all time.
An Inconvenient Truth was Al Gore’s sustainability masterpiece and his most public work on environmental issues, but it wasn’t his only tactic for influencing change. In 2004, Al Gore’s investment firm launched: Generation Investment Management, a London-based fund management firm that focuses exclusively on companies that meet sustainability criteria.
Generation Investment Management currently holds 46 stocks. Its top holding makes up nearly seven percent of the total portfolio and is valued at more than $1.6 billion. What is that stock, and why has Al Gore’s fund put so much faith in it? Will Generation Investment Management’s $1.6 billion bet pay off?
How Al Gore’s Fund Invests
The pros and cons of a capitalist system are under constant debate. Proponents appreciate the freedom to pursue wealth unfettered, while detractors note issues like wealth inequality and exploitation of workers.
Many believe that capitalism and environmental protection are mutually exclusive. The pursuit of profits requires constant growth, and there is always a push to reduce expenses so as to maximize profits. The trouble is that infinite expansion isn’t an option when natural resources are finite. For example, converting rainforests to farmland and devoting groundwater to irrigation necessarily impacts ecology.
There is also an argument that companies in capitalist economies externalize environmental costs. They don’t have to pay for the environmental damage they cause–and that problem is even larger in countries that don’t prioritize environmentally-friendly regulations.
The Al Gore investment firm, Generation Investment Management, aims to find the balance between profitability and sustainability. The fund calls itself a “pure-play sustainable investment manager.” It has “played a pioneering role in the development of sustainable and environmental, social, and governance (ESG) investing.”
As of June 30, 2021, Generation Investment Management is responsible for client assets totaling more than $36 billion. It is a Certified B Corporation, which comes with a legal requirement to examine all business decisions from the perspective of workers, suppliers, customers, environment, and community, then find balance before attending to its own best interests.
In practice, that means that under Al Gore’s investment management leadership, Generation Investment Management carefully considers the impact of the companies it includes in its portfolio. For example, though the firm tends to follow the Warren Buffett value investing strategy, it probably won’t buy Coca-Cola stock–a major component of Buffett’s portfolio. From a philosophical perspective, Generation Investment Management is likely concerned with the potential future negative externalities that come with consuming sugary drinks.
$1,600,000,000 on 1 Stock
While $36 billion is a healthy sum, Al Gore’s investment management company’s total assets under management pale in comparison to more mainstream funds. For example, Vanguard 500 Index Fund Admiral Shares (VFIAX) has $829.0 billion in total net assets, and Warren Buffett’s holding company, Berkshire Hathaway (BRK.B), has a market cap of $628.84 billion.
The comparison is important because it shows exactly what $1.6 billion means to a $36 billion portfolio. It’s a big bet, demonstrating that Generation Investment Management has deep faith in the company–and that company is Baxter International (BAX).
Illinois-based Baxter International is a healthcare business that produces products designed to treat kidney disease, hemophilia, and immune deficiencies, among others. It also produces vaccines, products for regenerative medicine, and a variety of intravenous products for the purpose of providing medication and fluids to patients.
In accordance with Generation Investment Management’s mission and values, it is working with Baxter to ensure alignment in meeting climate-related goals, increasing diversity in the company’s senior leadership, and promoting the sort of innovation that will improve quality of life for people experiencing a variety of chronic and acute illnesses.
Why Is Baxter Special: A Wide Moat?
Baxter International is in a solid position within its target market, but that doesn’t explain how Al Gore’s sustainability and ESG goals fit in. Why is Baxter special? In short, Generation Investment Management appears to believe that Baxter is on track for reliable, predictable growth.
Its products are low-cost and critical for basic care, which keeps them out of the fray when it comes to the rapid rate of regulatory and technological change.
When there was a temporary shortage in the sorts of products Baxter supplies, the entire industry–with the help of the government–rallied to solve the problem. That demonstrates that Baxter performs a critical function within the healthcare space.
Meanwhile, despite the fact that Baxter’s products are relatively low-cost, there are significant barriers to entry which limits the likelihood of competitors pulling market share away.
Baxter Share Price Has Been Lagging
It’s true that Baxter’s share price struggled a bit during the height of the health crisis. The disruption to the healthcare industry impacted a long list of companies in the industry due to changing patterns in healthcare consumption.
During the pandemic, Baxter set its own interests aside to contribute its expertise to the battle against COVID. It scaled up its production of the equipment needed to manage acute kidney disease, which proved to be a serious issue among patients. Perhaps more importantly, Baxter supported the development of complex packaging required for COVID vaccines, which got those vaccines to market more quickly.
Most analysts believe that Baxter’s share price will go up as the healthcare industry recovers and finds a new normal. However, there are no guarantees. It’s possible that Baxter stock won’t see the expected gains, which could negatively impact shareholders like Generation Investment Management’s funds.
Baxter Fair Market Value
In the current environment, industry analysts like those at Generation Investment Management believe that Baxter is undervalued. The unusual conditions of the past two years have depressed share prices to the point that they no longer accurately represent the company’s true value.
The discount is estimated to be around 6.5 percent, and the upside is likely between 23.7 percent and 40.8 percent, with a median of roughly 32 percent. All in all, that suggests that Baxter stock is a buy, and Al Gore’s investment team will be right in making their big bet.
Running a straightforward discounted cash flow analysis pegs the intrinsic price per share for Baxter at $93.08, representing 18.7% upside from current levels at the time of research.
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