David Rolfe

David Rolfe

Last Update: 11-14-2016

Number of Stocks: 35
Number of New Stocks: 1

Total Value: $4,770 Mil
Q/Q Turnover: 5%

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

David Rolfe Watch

  • David Rolfe Buys 1, Sells 1 in 3rd Quarter

    Wedgewood Partners’ David Rolfe (Trades, Portfolio) acquired one new holding and sold another in the third quarter.


    Rolfe is the chief investment officer at Wedgewood. The firm’s investment philosophy is established on the belief that significant long-term wealth can be created through investing as an “owner” in a company. It looks for a dominant product or service that is hard to compete with, has sustainable and consistent growth of revenue, earnings and dividends, is highly profitable and has a strong, shareholder-oriented management team.

      


  • Robert Olstein Invests in Waste Management, Outdoor Sports, Lab Products

    Olstein Capital Management’s Robert Olstein (Trades, Portfolio) bought eight new holdings in the third quarter. His top three new holdings are Stericycle Inc. (NASDAQ:SRCL), Vista Outdoor Inc. (NYSE:VSTO) and VWR Corp. (NASDAQ:VWR).


    Olstein founded his firm in 1995. It follows an accounting-driven, value-oriented philosophy that is based on the premise that the price of a common stock may not reflect the company’s true value. The investment team employs analytical and valuation methods to determine the quality of a company. It looks behind the numbers to assess the company’s financial strength and downside risk.

      


  • Apple Reports Strong Fiscal 4th Quarter Earnings

    During the fiscal quarter ended Sept. 25, Apple Inc. (NASDAQ:AAPL) reported $46.9 billion in net income and diluted earnings per share of $1.67. The company’s gross margin slightly declined compared to the corresponding quarter last year.


    While these values were slightly lower compared to the fiscal fourth quarter of 2015, Apple’s service revenue reached an all-quarter high of $6.3 billion in the most recent quarter, likely due to increased iPhone 7 sales and Samsung Electronics Co. Ltd. (XKRX:005930) (XKRX:005935) terminating its Note 7.

      


  • David Rolfe Comments on TreeHouse Foods Inc.

    We initiated positions in TreeHouse Foods, Inc. (NYSE:THS) during the third quarter. TreeHouse is the largest private label food manufacturer and distributor in North America. An aphorism in the private label industry is that “a grocer is only as good as their private label.” As such, private label food has been growing its share of the North American food industry over the past several years, as consumers have sought value in comparison with branded food, and as grocery retailers and other food vendors have pursued the greater profitability to themselves of private label products. This trend primarily began in national-brand equivalents, in which TreeHouse and other private label manufacturers offer products of comparable quality to brand names but at better prices. However, much of TreeHouse’s growth in recent years has come from premium products, which often might be natural/organic/healthy choices and possibly of even greater quality or featuring greater innovation (flavors/recipes) than competing branded products. Having evolved from simply offering retail customers a "good/better/best" option of national brand equivalents, the Company has begun to offer deeper category segmentation and insights, while developing and manufacturing multi-tiered pricing assortments, so their retail customers can better compete under the pricing umbrella typically created by higher priced national brands. Many of TreeHouse’s best customers, including large, growing retailers such as Trader Joe’s, Aldi’s, Amazon, and Kroger, have embraced this more complete portfolio strategy of private label products, which offers the retailers not only improved profitability but also better sales opportunities, as well. In addition, TreeHouse’s scale and presence in over 20 food categories, enhances its value proposition, which is to help grocery customers hone in on this secular trend towards customized store brands.


    The Company has been growing successfully through acquisition since its formation in 2005. TreeHouse has driven value in its acquired businesses by bringing to bear greater operational capabilities and expertise, greater resources behind innovation and customer research, much greater scale and buying power, and an extensive existing customer list into which the acquired businesses could sell. In early 2016, TreeHouse completed the transformational acquisition of the Private Brands business of ConAgra Foods, effectively doubling TreeHouse’s revenue base and operating footprint while removing its only private label competitor of any meaningful size, all at what we view as an attractive purchase price. The acquired business had struggled under the ownership of ConAgra, which historically had been a branded player and which had not understood the different skill set required to operate a private label business. We believe that TreeHouse comprehensively understands these operational issues and already has begun to remedy them. Better execution at the acquired business, which will drive improving revenue growth and margins, combined with significant cost savings opportunities as a result of the combined companies’ greatly enhanced scale, will allow TreeHouse to deliver roughly 70% earnings growth from the time of the acquisition to the completion of its integration in 2018. During this integration, we likely will see smaller tuck-in acquisitions, as the company’s capital structure still allows it to be active in consolidating the industry. We estimate that the company has less than 10% market share in North America, with plenty of room to expand organically and through acquisition, both within its current 20+ product categories and in adjacent and new categories.

      


  • David Rolfe Comments on Cognizant

    Cognizant (NASDAQ:CTSH) also detracted from overall performance during the quarter, due to management’s cautious commentary related to the demand environment in two of their core customer verticals. Management’s caution about IT spend in Cognizant’s BFS (Banking and Financial Services) segment trace back to the prolonged low interest rate environment along with increased uncertainty in the macro environment—particularly attributed to the “Brexit” vote, which was relatively fresh news at the time of management’s comments. We do not think this weakness has materialized in the near-term, at least to the extent that management was implying. In addition, but not necessarily new, Cognizant has four clients in the HMO (health-maintenance organization) industry, all attempting to merge with or acquire the other. Though the extended timeline of these M&A deals likely pushes out the timing of expected work for Cognizant at each of these four clients, we think Cognizant’s longer-term positioning as a key partner at all four HMOs will continue to allow them to capture wallet share, regardless of M&A outcomes. Near-term, we expect investors to remain skittish around the shares, if only because the investor base has been skittish for years, with the NTM P/E multiple of Cognizant typically vacillating 20%-30% per year. Despite these recent headwinds to topline growth, we think Cognizant maintains a long- term runway for generating attractive organic growth, as the company benefits from the secular shift of IT spend towards digital solutions. The Company maintains excellent financial strength, with nearly $8 billion in borrowing capacity before reaching the average net debt to operating income leverage of the S&P 500—close to 25% of the current market cap.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners third-quarter 2016 shareholder letter.   


  • David Rolfe Comments on Core Labs

    Core Labs (NYSE:CLB) was the third largest detractor from our relative performance during the third quarter. While “energy” continues to be a four-letter word at this point in the cycle of U.S. growth investing,5 we continue to think that Core Labs’ value proposition is worthy of multi-cycle consideration. We estimate that roughly 85% of the Company’s revenues are generated by providing equipment and services for the upkeep of their customers’ existing carbon producing fields. As such, the majority of the value that Core Labs provides its customers is not directly predicated on the activity of drillings rigs, or even on the short-term price of oil. For instance, the Company’s Reservoir Description business generated over 60% of consolidated revenues during the trailing 12 months. Reservoir Description revenues have declined just -16% from their trailing 12-month peak (set during late 2013 through mid 2014 – when oil traded at twice today’s levels). A significant portion of Core Labs’ revenues are generated outside the United States, so we estimate revenues in Reservoir Description have probably fallen by a high single digit percent, constant currency – despite the E&P industry (Core Labs’ customers) drastically cutting budgets by between - 30% and -75% during that timeframe. Thus, a significant portion of Core Labs’ business is very well insulated from the vagaries of short-term oil price fluctuations. Although the margins of this segment have suffered more than revenues, we expect that margins have bottomed and should rapidly rebound with E&P spending budgets, as Core Labs’ management has prudently balanced costs without sacrificing personnel capacity.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners third-quarter 2016 shareholder letter.   


  • David Rolfe Comments on Stericycle

    Stericycle (NASDAQ:SRCL) underperformed during the quarter as headwinds related to their core, regulated medical waste (RMW) segment began to emerge. Prior headwinds to the Company were limited to non-core businesses or are short-term issues that should be remedied over the next few quarters. While the stock has become cheap, historically and relatively, we did not add to positions during the quarter, as we continue to evaluate the extent of the pressure the Company is seeing in its RMW business.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners third-quarter 2016 shareholder letter.   


  • David Rolfe Comments on Qualcomm

    Qualcomm (NASDAQ:QCOM) was also a top contributor to performance over the past three months. We saw Qualcomm make meaningful progress on its technology licensing (QTL) front after several quarters of patiently waiting for the Company to capture unpaid royalties in China. Although Qualcomm’s chipset franchise (QCT) usually garners most of the attention for the Company, its high-margin QTL segment actually generates two-thirds to three-quarters of consolidated profitability. So while revenues at Qualcomm grew 4%, operating income grew almost 30%, year-over-year. Although it has taken several quarters to eventually materialize, we think that the “lumpy” nature of QTL revenues does not make Qualcomm’s long-term prospects for monetizing its prolific research and development spend (cumulative $16 billion over the past three years), any less attractive. In our opinion, Qualcomm shares remain underappreciated by the market, trading at just 14X next 12 month earnings. In addition, the Company maintains a fortress-like balance sheet with about $20 billion in net cash. As a valuation thought-experiment, if Qualcomm levered its balance sheet to be at parity with the average S&P 500 company's (excluding financials) net debt-to-operating earnings ratio4, the Company would have close to 35% of its market cap available for redeployment. We continue to expect that the long-term growth of the business will drive the stock higher and help close that gap, but our conviction in the stock is reinforced by the Company’s excellent financial health, which is a byproduct of their superior profitability.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners third-quarter 2016 shareholder letter.   


  • David Rolfe Comments on Priceline

    Priceline (NASDAQ:PCLN) was another top contributor to performance during the quarter. Despite its strong performance, in our view, Priceline’s stock has underperformed its corporate fundamentals. Over the past three years, earnings per share are up a cumulative +60%, while the P/E multiple has contracted about 15%, to around 19X the next 12-month earnings. Further, if we assume that all stocks receive some kind of multiple expansion benefits due to currently low interest rates, 3 then Priceline’s multiple contraction looks all the more stark. Thus, although Priceline has executed torrid value creation relative to the benchmark, the stock has posted a fraction of the outperformance. We continue to think Priceline’s competitive advantage consists of scale on both the supply and demand side of the hospitality industry. With over 90% of the Company’s profitability coming from non-US markets, particularly from Europe, we believe their strategy of foregoing low-margin US bookings in favor of bookings in higher-margin, fragmented markets is a sensible one.

      


  • David Rolfe Comments on Apple

    During the quarter, Apple (NASDAQ:AAPL) was a top contributor to relative performance. Apple has been in portfolios for nearly a decade. Even though Apple is one of the most visible and widely followed businesses in our investment universe, we believe it has long suffered from the incorrect market perception that its customer relationships are largely transactional in nature. We see evidence of these "hit-driven" fears embedded in the systematic contraction of Apple's forward price-to-earnings (P/E) multiple. Apple's P/E multiple peaked in the fall of 2007 at about 38X (not long after the iPhone launched and the S&P 500 P/E peaked for that cycle) and has contracted to around 12.7X, albeit up from the 9X and 10x multiples seen earlier this year and in 2013. We earnestly admit that Apple probably does not deserve to trade at the 38X forward earnings2, yet we believe that Apple’s iOS franchise and “annuity-like” ecosystem has demonstrated an exceptional ability to retain and obtain repeat customers, while commanding over 90% of the profitability generated by smartphone manufacturers—qualities we think should help the stock generate extremely attractive returns at the current multiple.

      


  • David Rolfe Comments on TreeHouse Foods

    We initiated positions in TreeHouse Foods, Inc. (NYSE:THS) during the third quarter. TreeHouse is the largest private label food manufacturer and distributor in North America. An aphorism in the private label industry is that “a grocer is only as good as their private label.” As such, private label food has been growing its share of the North American food industry over the past several years, as consumers have sought value in comparison with branded food, and as grocery retailers and other food vendors have pursued the greater profitability to themselves of private label products. This trend primarily began in national-brand equivalents, in which TreeHouse and other private label manufacturers offer products of comparable quality to brand names but at better prices. However, much of TreeHouse’s growth in recent years has come from premium products, which often might be natural/organic/healthy choices and possibly of even greater quality or featuring greater innovation (flavors/recipes) than competing branded products. Having evolved from simply offering retail customers a "good/better/best" option of national brand equivalents, the Company has begun to offer deeper category segmentation and insights, while developing and manufacturing multi-tiered pricing assortments, so their retail customers can better compete under the pricing umbrella typically created by higher priced national brands. Many of TreeHouse’s best customers, including large, growing retailers such as Trader Joe’s, Aldi’s, Amazon, and Kroger, have embraced this more complete portfolio strategy of private label products, which offers the retailers not only improved profitability but also better sales opportunities, as well. In addition, TreeHouse’s scale and presence in over 20 food categories, enhances its value proposition, which is to help grocery customers hone in on this secular trend towards customized store brands.


    The Company has been growing successfully through acquisition since its formation in 2005. TreeHouse has driven value in its acquired businesses by bringing to bear greater operational capabilities and expertise, greater resources behind innovation and customer research, much greater scale and buying power, and an extensive existing customer list into which the acquired businesses could sell. In early 2016, TreeHouse completed the transformational acquisition of the Private Brands business of ConAgra Foods, effectively doubling TreeHouse’s revenue base and operating footprint while removing its only private label competitor of any meaningful size, all at what we view as an attractive purchase price. The acquired business had struggled under the ownership of ConAgra, which historically had been a branded player and which had not understood the different skill set required to operate a private label business. We believe that TreeHouse comprehensively understands these operational issues and already has begun to remedy them. Better execution at the acquired business, which will drive improving revenue growth and margins, combined with significant cost savings opportunities as a result of the combined companies’ greatly enhanced scale, will allow TreeHouse to deliver roughly 70% earnings growth from the time of the acquisition to the completion of its integration in 2018. During this integration, we likely will see smaller tuck-in acquisitions, as the company’s capital structure still allows it to be active in consolidating the industry. We estimate that the company has less than 10% market share in North America, with plenty of room to expand organically and through acquisition, both within its current 20+ product categories and in adjacent and new categories.

      


  • David Rolfe Comments on Cognizant

    Cognizant (NASDAQ:CTSH) also detracted from overall performance during the quarter, due to management’s cautious commentary related to the demand environment in two of their core customer verticals. Management’s caution about IT spend in Cognizant’s BFS (Banking and Financial Services) segment trace back to the prolonged low interest rate environment along with increased uncertainty in the macro environment—particularly attributed to the “Brexit” vote, which was relatively fresh news at the time of management’s comments. We do not think this weakness has materialized in the near-term, at least to the extent that management was implying. In addition, but not necessarily new, Cognizant has four clients in the HMO (health-maintenance organization) industry, all attempting to merge with or acquire the other. Though the extended timeline of these M&A deals likely pushes out the timing of expected work for Cognizant at each of these four clients, we think Cognizant’s longer-term positioning as a key partner at all four HMOs will continue to allow them to capture wallet share, regardless of M&A outcomes. Near-term, we expect investors to remain skittish around the shares, if only because the investor base has been skittish for years, with the NTM P/E multiple of Cognizant typically vacillating 20%-30% per year. Despite these recent headwinds to topline growth, we think Cognizant maintains a long- term runway for generating attractive organic growth, as the company benefits from the secular shift of IT spend towards digital solutions. The Company maintains excellent financial strength, with nearly $8 billion in borrowing capacity before reaching the average net debt to operating income leverage of the S&P 500—close to 25% of the current market cap.


    From Wedgewood Partners' third quarter 2016 shareholder commentary.

      


  • David Rolfe Comments on Core Labs

    Core Labs (NYSE:CLB) was the third largest detractor from our relative performance during the third quarter. While “energy” continues to be a four-letter word at this point in the cycle of U.S. growth investing,5 we continue to think that Core Labs’ value proposition is worthy of multi-cycle consideration. We estimate that roughly 85% of the Company’s revenues are generated by providing equipment and services for the upkeep of their customers’ existing carbon producing fields. As such, the majority of the value that Core Labs provides its customers is not directly predicated on the activity of drillings rigs, or even on the short-term price of oil. For instance, the Company’s Reservoir Description business generated over 60% of consolidated revenues during the trailing 12 months. Reservoir Description revenues have declined just -16% from their trailing 12-month peak (set during late 2013 through mid 2014 – when oil traded at twice today’s levels). A significant portion of Core Labs’ revenues are generated outside the United States, so we estimate revenues in Reservoir Description have probably fallen by a high single digit percent, constant currency – despite the E&P industry (Core Labs’ customers) drastically cutting budgets by between - 30% and -75% during that timeframe. Thus, a significant portion of Core Labs’ business is very well insulated from the vagaries of short-term oil price fluctuations. Although the margins of this segment have suffered more than revenues, we expect that margins have bottomed and should rapidly rebound with E&P spending budgets, as Core Labs’ management has prudently balanced costs without sacrificing personnel capacity.


    From Wedgewood Partners' third quarter 2016 shareholder commentary.

      


  • David Rolfe Comments on Stericycle

    Stericycle (NASDAQ:SRCL) underperformed during the quarter as headwinds related to their core, regulated medical waste (RMW) segment began to emerge. Prior headwinds to the Company were limited to non-core businesses or are short-term issues that should be remedied over the next few quarters. While the stock has become cheap, historically and relatively, we did not add to positions during the quarter, as we continue to evaluate the extent of the pressure the Company is seeing in its RMW business.


    From Wedgewood Partners' third quarter 2016 shareholder commentary.

      


  • David Rolfe Comments on Qualcomm

    Qualcomm (NASDAQ:QCOM) was also a top contributor to performance over the past three months. We saw Qualcomm make meaningful progress on its technology licensing (QTL) front after several quarters of patiently waiting for the Company to capture unpaid royalties in China. Although Qualcomm’s chipset franchise (QCT) usually garners most of the attention for the Company, its high-margin QTL segment actually generates two-thirds to three-quarters of consolidated profitability. So while revenues at Qualcomm grew 4%, operating income grew almost 30%, year-over-year. Although it has taken several quarters to eventually materialize, we think that the “lumpy” nature of QTL revenues does not make Qualcomm’s long-term prospects for monetizing its prolific research and development spend (cumulative $16 billion over the past three years), any less attractive. In our opinion, Qualcomm shares remain underappreciated by the market, trading at just 14X next 12 month earnings. In addition, the Company maintains a fortress-like balance sheet with about $20 billion in net cash. As a valuation thought-experiment, if Qualcomm levered its balance sheet to be at parity with the average S&P 500 company's (excluding financials) net debt-to-operating earnings ratio4, the Company would have close to 35% of its market cap available for redeployment. We continue to expect that the long-term growth of the business will drive the stock higher and help close that gap, but our conviction in the stock is reinforced by the Company’s excellent financial health, which is a byproduct of their superior profitability.


    From Wedgewood Partners' third quarter 2016 shareholder commentary.

      


  • David Rolfe Comments on Priceline

    Priceline (NASDAQ:PCLN) was another top contributor to performance during the quarter. Despite its strong performance, in our view, Priceline’s stock has underperformed its corporate fundamentals. Over the past three years, earnings per share are up a cumulative +60%, while the P/E multiple has contracted about 15%, to around 19X the next 12-month earnings. Further, if we assume that all stocks receive some kind of multiple expansion benefits due to currently low interest rates, 3 then Priceline’s multiple contraction looks all the more stark. Thus, although Priceline has executed torrid value creation relative to the benchmark, the stock has posted a fraction of the outperformance. We continue to think Priceline’s competitive advantage consists of scale on both the supply and demand side of the hospitality industry. With over 90% of the Company’s profitability coming from non-US markets, particularly from Europe, we believe their strategy of foregoing low-margin US bookings in favor of bookings in higher-margin, fragmented markets is a sensible one.


    From Wedgewood Partners' third quarter 2016 shareholder commentary.

      


  • Wedgewood Partners 3rd Quarter Letter: Is Indexation Investing the New Momentum Speculation?

    'Too much of a good thing can be wonderful!'


    Mae West

      


  • New: GuruFocus Podcast Interviews John Buckingham and David Rolfe About Apple Stock

    GuruFocus unveils a new podcast today.


    Episode 1 features two well-known investors, John Buckingham (Trades, Portfolio) of Al Frank Asset Management and David Rolfe (Trades, Portfolio) of Wedgewood Partners. They have a conversation with GuruFocus about the state of iPhone maker Apple and answer some bearish questions. Apple is Rolfe's top holding and Buckingham's fourth largest.

      


  • New GuruFocus Podcast: Interview With John Buckingham and David Rolfe About Apple

    GuruFocus is introducing a new podcast today that will link members even closer to gurus, news, and intelligent discussion about investing.


    The first podcast features two well-known investors, John Buckingham (Trades, Portfolio) of Al Frank Asset Management and David Rolfe (Trades, Portfolio) of Wedgewood Partners. They have a conversation with GuruFocus about the state of iPhone maker Apple and answer some bearish questions.

      


  • Ron Baron Buys Under Armour in 2nd Quarter

    Ron Baron (Trades, Portfolio), founder of Baron Asset Management and co-portfolio manager of the Baron Partners Fund, invests in companies using a long-term investing approach.


    The fund seeks capital appreciation through focused research on the company’s management and long-term growth opportunities. During the second quarter, Baron took stakes in Under Armour Inc. (UA.C), Red Rock Resorts Inc. (NASDAQ:RRR) and MGM Growth Properties LLC (NYSE:MGP). Additionally, the fund manager increased his position in Gaming and Leisure Properties Inc. (NASDAQ:GLPI).

      


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