David Rolfe

David Rolfe

Last Update: 11-16-2015

Number of Stocks: 24
Number of New Stocks: 2

Total Value: $6,869 Mil
Q/Q Turnover: 9%

Countries: USA
Details: Top Buys | Top Sales | Top Holdings  Embed:

David Rolfe Watch

  • Qualcomm Is Generating, Returning Cash to Shareholders

    Qualcomm (NASDAQ:QCOM) is a chipmaker, but even more importantly, it is a royalty company. Qualcomm owns the IP that is required to hook up phones to 3G networks and the chipmaker receives between 3% and 5% of the price of every handset sold. LTE technology is emerging and Qualcomm's take on those phones may not be as outsized, but they own a lot of patents required for it as well. When the Chinese government began questioning whether what Qualcomm was doing was really valid, the stock took a big hit. Although U.S. and Western European markets are somewhat mature in terms of 3G penetration, future 4G and 5G phones will still likely be compatible and there is a solid runway for growth in emerging markets. The IDC predicts solid growth.


    Worldwide smartphone forecast by OS, shipments, market share, growth and five-year CAGR (units in millions)

      


  • Wedgewood Partners Comments on Perrigo

    Perrigo (NYSE:PRGO) is another position that we added to during the quarter. We had previously pared positions at materially higher levels after Mylan’s hostile bid for Perrigo became public information. Upon the recent expiration of the hostile offer, shares traded down to valuation levels not seen since 2008-2009, at which time we added back to our position. Management has guided to solid future growth, driven by the Company’s leading position in manufacturing and distributing private label over-the-counter (OTC) drugs to U.S. retailers, as well as its relatively new and rapidly expanding European OTC platform.


    From Wedgewood Partners' fourth quarter 2015 client letter.

      


  • Wedgewood Partners Comments on Stericycle

    We added to positions in Stericycle (NASDAQ:SRCL) after the stock sold off on what we view was an over-reaction to weakness in the Company’s non-core, industrial waste business. Albeit a surprise, we think this weakness is limited to a mid-single digit percent of the Company’s revenue. In our view, the rest of Stericycle’s business, including the recently acquired Shred-It, is a very high-quality, steady growth model.


    From Wedgewood Partners' fourth quarter 2015 client letter.

      


  • Wedgewood Partners Comments on Coach

    We also exited our positions in Coach (NYSE:COH) as we have seen the Company’s international unit, particularly in China, dramatically slow (on a constant currency basis). Relatively speaking, their results in China are still exceptional. Coach competes well below the price points of higher-end luxury players, and therefore has avoided the negative side effects of the Chinese Government’s corruption crackdown that has curtailed a wide swath of demand for higher-end luxury goods. However, on an absolute basis, we find it marginally more difficult to make the case for Coach’s long-term, double-digit earnings per share growth rate.


    From Wedgewood Partners' fourth quarter 2015 client letter.

      


  • Wedgewood Partners Comments on Cummins

    We also sold Cummins (NYSE:CMI) during the quarter. We typically tolerated Cummins’ more cyclical end-market exposure due to their superior competitive positioning and continuous share-take. Much of this has been attributed to the Company’s technological leadership, which drove some key competitors out of the market since 2008. However, as the NAFTA truck cycle slows, management guided decremental margins to levels that we were disappointed with, given their superior competitive positioning. The Company has executed well, at least in its critical Components, and Engines businesses, but we worry it is the recent re-entry of competitors that might be causing their profitability to moderate at a difficult point in their product cycle.


    From Wedgewood Partners' fourth quarter 2015 client letter.

      


  • Wedgewood Partners Comments on Varian Medical Systems

    We sold Varian Medical Systems (NYSE:VAR) early in the quarter. The Company maintains its position as the dominant supplier of radiotherapy equipment and software, worldwide. We see Varian’s core business growing earnings per share at a steady, low to mid-single digit rate, as developed markets have reached maturity. In addition, the dramatic devaluation of the Japanese yen relative to the U.S. Dollar has caused some competitive pressures in its non-core Imaging and Components segment, further pressuring growth. While Imaging Components might regain competitiveness over the next few years, we do not think it will be enough to drive earnings growth to our required rate.


    From Wedgewood Partners' fourth quarter 2015 client letter.

      


  • Wedgewood Partners Comments on National Oilwell Varco

    During the quarter, we exited our investments in National Oilwell Varco (NYSE:NOV) (Varco). Varco continues to dominate the market for supplying offshore rigs with comprehensive drilling packages and equipment. However, over the past few years we have seen dual industry headwinds hit Varco's customers particularly hard in the form of prohibitively high offshore development costs, combined with a continuous flood of OPEC’s low-cost oil supply. We concluded that the Company's customers - offshore drilling contractors, national oil companies and international oil companies - were systematically shifting their budgets away from offshore, towards onshore development, increasing the risk of another three to maybe even five years of low or negative earnings growth. In addition, while the company continues to have dominant market share, particularly in providing new and aftermarket equipment to offshore drilling rigs, we think this addressable market has the potential to contract for several years as cheap oil from OPEC countries crowds out higher-cost sources of marginal production, especially for non-OPEC offshore producers.


    Varco's stock is no doubt cheap, at least based on the previous cycle’s earnings power, but we think the secular shift away from offshore exploration and development continues for a few more years, which makes the previous cycle difficult to use as a comparable. Further, Varco's exceptional financial strength affords them ample leverage to buy distressed assets, but in our view there are not many opportunities for them to grow their lucrative rig-tech businesses, where they have dominant market share. While Varco's long-term competitive strategy is heavily contingent on M&A, we have yet to see a material slow down in the availability of cheap capital to the sector, which has conspired to keep target asking prices above where Varco is willing to bid. In the meantime, management has signaled a less aggressive stance on share buybacks, despite what we think is a particularly attractive historical valuation, as they bide their time and husband capital for M&A. If the Company manages to close in on an attractive target to offset the long -term risk of offshore rig technology business, we will likely revisit Varco as an investment idea. However, we are skeptical that attractive returns are available, given the abundance of competing capital and the Company's already dominant position in rig technology.

      


  • Wedgewood Partners Comments on Qualcomm

    Of note regarding our continued conviction to hold onto Qualcomm (NASDAQ:QCOM), we think Qualcomm's underperformance during the quarter was largely attributed to customer compliance issues and increasing regulatory scrutiny. Both pertain to Qualcomm's lucrative licensing segment, which accounts for the majority of the Company's profitability. Qualcomm continues to represent an excellent risk-reward trade-off, with shares trading at historically low multiples. Ample growth catalysts include management's aggressive investment in increasing customer compliance with respect to signing licensing agreements, as well as retaking market share in its still-dominant chipset business.


    We think the existential crisis that the market is pricing into Qualcomm’s shares is much too dire. First, China’s “techno-nationalism” has made it notoriously difficult for U.S. technology companies to compete on the Mainland 2. We believe too that Qualcomm’s 2015 settlement with Chinese regulators over licensing practices represents a very unique and attractive new source of high-margin, revenue growth. To date, it has been difficult for Qualcomm to begin collecting, per their settlement. However, during the quarter, the Company announced that they had signed licensing agreements with four of the five largest Chinese mobile device original equipment manufacturers, so we expect to see licensing revenue ramp faster than the market is expecting. Second, we think there is a good probability Qualcomm wins back share at some key chipset accounts, which should bode well for margins, especially as the Company has invested in a nimbler cost-structure. Last, while we can attribute some of Qualcomm’s recent stumbles to a mobile handset industry that is entering a more mature phase of growth, the Company is relatively further along in the process of converting its business model to reflect those realities, and we expect double-digit earnings per share gains over the next few years. We estimate that Qualcomm currently trades at a mid-single digit forward earning per share multiple, adjusted for net cash, which is a substantial discount to both the Russell 1000 Growth Index and S&P 500 Index. We expect continued significant buyback activity over the next several quarters, which should enhance the Company’s per-share growth prospects.

      


  • Wedgewood Partners 4th Quarter Client Letter: 'Back to Our Regularly Scheduled Stock Market'

    Back To Our Regularly Scheduled Stock Market


    "What The Fed did, and I was part of it, was front-loaded an enormous market rally in order to create a wealth effect...and an uncomfortable digestive period is likely now…The Fed is a giant weapon that has no ammunition left…It was The Fed, The Fed, The Fed... in my opinion they got lazy…and it is time to go back to fundamental analysis ...and not just expect the tide to lift all boats...and as [The Fed] tide recedes we are going to see who is wearing a bathing suit and who is not"

      


  • Why David Rolfe Sees Value in Apple


    Guru David Rolfe (Trades, Portfolio) has been managing Wedgewood Partners for the last 18 years. He's a very good value and ownership-oriented manager, and I like to keep tabs on his portfolio and his views about certain companies. He just appeared on CNBC where he talked about Apple (NASDAQ:AAPL), which is a stock that is very confusing to me, and which I have discussed just last week on GuruFocus.

      


  • David Rolfe Trims Stakes in Visa, M&T Bank

    David Rolfe (Trades, Portfolio) significantly trimmed his holdings in Visa Inc. (NYSE:V) and M&T Bank Corp. (NYSE:MTB) in the third quarter, reducing his position by 516,412 shares in Visa and 220,344 shares in M&T Bank.


    Rolfe is the CEO and portfolio manager of Wedgewood Partners Inc. He graduated from the University of Missouri with a B.S.B.A. in Finance/Economics in 1984. He has over 29 years of investment experience managing portfolios.

      


  • David Rolfe's Holdings Trading With Wide Margin of Safety

    David Rolfe (Trades, Portfolio) has been managing Wedgewood Partners' portfolio for 18 years. Wedgewood's underlying equity investment philosophy is predicated on a strong belief that significant long-term wealth will be created by investing as "owners" in companies.


    The following are the stocks he holds that are trading with a wide margin of safety and with a very low P/E ratio.

      


  • Oil Stocks the Most Gurus Are Buying

    As crude oil prices continue their descent to almost their lowest point since 2009, many value investors have contemplated whether oil stocks offer a compelling value.


    In November, North Sea Brent Crude averaged $44 per barrel, falling $4 per barrel from October, due to an increase of 1.3 million barrels per day in inventory. Protracted low oil prices have resulted from global petroleum production outpacing consumption, creating surplus inventory. That inventory build may finally be beginning to slow, according to the U.S. Energy Information Administration’s December 2015 Short Term Energy Outlook. The EIA estimates that global oil inventory builds averaged 1.8 million barrels per day in the third quarter, down from 2 million b/d in the second quarter, which saw the highest level of surplus inventory since 2008.

      


  • David Rolfe Trims Holdings in Alphabet, Visa in 3rd Quarter

    Wedgewood Partners Inc. was founded in 1988 with the goal of providing investors with a superior approach to managing investment portfolios. David Rolfe (Trades, Portfolio) has been Wedgewood's CIO for 18 years.


    He manages a portfolio composed of 24 stocks with total value of $6,869 million, and the following are his largest sales during the third quarter.

      


  • David Rolfe Buys Stake in Newly Trading Kraft Heinz, PayPal

    During the third quarter, David Rolfe (Trades, Portfolio) of Wedgewood Partners initiated two new holdings in companies with recent IPOs and sold an oil and gas-related stock, according to data reported by GuruFocus Real Time Picks.


    The fund declined 7.38% during the quarter, compared to the Standard & Poor's 500 and Russell 1000 Growth Index, which declined 6.44% and 5.29%. In the third quarter commentary, Rolfe and the fund reiterated its commitment to three energy holdings that have been held for the past 15 years: Core Labs (NYSE:CLB), National Oilwell Varco (NYSE:NOV) and Schlumberger (NYSE:SLB).

      


  • Korean Value Investor Will Speak for 2016 GuruFocus Value Conference, Omaha

    We are excited to announce that Inhee Park, CFA, Shinyoung Asset Management in South Korea, will join our List of Speakers for the 2016 GuruFocus Value Conference. You can learn more about the conference here. Now only seven days for Early Bird Registration.


    Park is head portfolio manager for dividend strategies at Shinyoung Asset Management, which manages more than $10 billion in value and dividend-based funds.

      


  • David Rolfe Comments on Schlumberger

    As oil prices entered their third bear market in 15 months, Schlumberger (NYSE:SLB) shares continued to underperform relative to the broad equity indices. We continue to see SLB as a best-in-class service provider that is aggressively investing in its integrated services offerings. We think SLB's unique advantage, which includes its industry leading army of oil and gas engineers, allows them to perform roles usually more associated with asset managers - not necessarily growing by quantity of services rendered, but by increasing the performance and output of the assets under management of their clients (in SLB's case, oil and gas wells), then capturing a fee for driving that performance. In-line with this shift, SLB recently announced the acquisition of Cameron International for close to $15 billion in total consideration. We see Cameron's core competency as being focused on "surface" equipment and services. This complements what we think is SLB's market share leadership in "down hole" services, providing SLB with more resources to continue their shift towards more fully managing E&P client assets. As oil service industry consolidation continues apace, we think SLB will emerge from this cycle in an enviable competitive position, relative to talent-starved E&P clients. While the negativity in SLB shares has been palpable and oil price volatility unseen in a generation, we think the long-term, pent-up earnings power of their business is very attractive relative to today's historically depressed valuations, so we added to our weighting in shares.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners third quarter 2015 letter.   


  • David Rolfe Comments on Qualcomm

    We incrementally added to our positions in Qualcomm (NASDAQ:QCOM) at the beginning of the quarter as we believe a slowdown in the Company’s chipset franchise (“QCT”) is more than discounted by the market. Further, we think QCT is at an earnings trough, as cost-containment efforts as well as restoration of socket share at key customers (e.g. Samsung) should restore the segment to mid-teen margins. We think Qualcomm’s licensing business (“QTL”) is also being dramatically undervalued. We expect “GDP-plus” revenue growth prospects and monopolistic operating margins well above 80% at QTL, and surmise that the market is assigning this business a single-digit, 2016 EV/EPS multiple, which is particularly attractive relative the “average” S&P 500 business trading in the mid to high teens multiples. We concluded that while the negative fundamental news on Qualcomm has lasted around 12 to 18 months, we think this is more than discounted in the current price and that this Company continues to have secular opportunities to grow earnings in the double-digit range.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners third quarter 2015 letter.   


  • David Rolfe Comments on Priceline

    During the quarter, Priceline (NASDAQ:PCLN)’s prolific growth continued unabated as total bookings grew 26% year-over-year, on a constant currency basis. We continue to think Priceline is doing an excellent job getting returns on shareholder funds, reinvesting in travel service demand, particularly through its industry leading, $2.6 billion online marketing budget, which grew slightly less than bookings9. While Priceline’s business model revolves around connecting travel industry asset owners (e.g. hotels, rental cars, restaurants) with travelers, we think the Company’s competitive advantage comes from being a highly-efficient, and therefore low -cost provider focused on serving smaller, more fragmented asset owners that lack the scale and marketing reach of Priceline’s global, online properties. In spite of this, the vast majority of Priceline’s profits are generated outside of the US, so recent currency headwinds have had a significant, albeit purely translational, effect on the Company’s “headline” fundamental results. We do not have much of an edge in predicting currencies, however we believe the effects of these headwinds will annualize themselves out of results in the next few quarters, and investors will re-discover that Priceline’s core growth potential and competitive advantage remain intact. Adjusted for net cash on the Priceline balance sheet, we think the Company’s earnings multiple is at a reasonable, mid-to-high teens level, based on 2016 consensus estimates. We think it has been increasingly difficult to find investment opportunities that exhibit such high levels of profitable, organic growth while paying reasonable valuations, so we added to our Priceline weightings during the quarter.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners third quarter 2015 letter.   


  • David Rolfe Comments on PayPal Holdings

    During the quarter, we initiated positions in PayPal Holdings (NASDAQ:PYPL), a leading provider of digital payment acceptance and merchant payment solutions. Recently spun out from long-time parent, eBay Inc., PayPal operates in over 200 markets with over 50% of net revenues derived from non-US markets.


    A pioneering force in online payment acceptance, PayPal traces its roots back to the late 1990’s most notably with the founding of PayPal. At the time, emerging online marketplaces, such as eBay, while growing rapidly, were in need of a digital payment solution to parallel that growth. PayPal fulfilled that demand and was particularly successful, in part, due to its simplicity and novel approach of aggregating small and mid-sized merchants onto its platform, allowing many emerging online merchants to bypass the prevailing and expensive process of using a merchant bank.

      


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