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

  • 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.


  • David Rolfe Comments on Mead Johnson

    Mead Johnson (NYSE:MJN) was another stock we incrementally added to during the quarter. We think news of increased price competition in the Chinese infant formula market is related to short-term distribution channel shifts, while the market perceives it as a threat to MJN's long-term earnings power. Importantly, we think very little of Mead Johnson's long-term value-added stems from manipulating channel economics. Instead, we think MJN's roughly, century-old track record of producing safe and scientifically differentiated infant formula continues to offer exceptional value relative to unproven, albeit cheaper, competing products - particularly in markets with less developed food supplies.

    We estimate that up to about a third of Mead Johnson's revenues are derived from Chinese mainland demand, with the Company supplying this market through four distribution channels. While that strikes us as being a particularly inefficient way to serve a market, we have thus far concluded it to be a necessary evil, more reflective of consumer culture and preference, and less indicative of any sort of supply-driven logic. Regardless, Mead Johnson continues to invest in its Chinese distribution efforts, especially given recent changes related to the easing of China's notorious family planning (e.g. "one child") policies, which could well likely open the door to an expanding addressable market. With shares trading near historically attractive levels relative to MJN's earnings prospects, we added to positions.


  • David Rolfe Comments on Kraft Heinz Company

    During the quarter we purchased shares of the Kraft Heinz Company (NASDAQ:KHC). Earlier this year, privately -held H.J. Heinz Company acquired publicly traded Kraft Foods in exchange for stock in the combined company and a one-time special dividend. Key to this transaction were the private equity shop 3G Capital, as well as another Focused Growth portfolio holding, Berkshire Hathaway. Prior to the Heinz-Kraft transaction, H.J. Heinz Company’s ownership was held exclusively by 3G Capital and Berkshire Hathaway, after a 2013 deal that took Heinz private. The newly combined Kraft Heinz Company began trading in July, with Berkshire Hathaway and 3G Capital combining to own just over half of the shares of the new Company.

    We think Kraft Heinz’s new leadership and culture, as brought to bear by 3G Capital’s rigorous, time-tested methods of recruiting and installing exceptional managerial talent, will be the Company’s primary competitive advantage and means for generating sustainably superior profitability.


  • David Rolfe Comments on EMC

    Over the past several years, EMC (NYSE:EMC) has done an excellent job reinvesting earnings to keep pace with the constantly evolving IT landscape. Publicly traded EMC subsidiary, VMware, is a good example. With a commanding lead in compute virtualization, we saw VMware's profits plowed back into R&D and acquisitions, leading to compelling product offerings for storage virtualization and network virtualization, both necessary elements for converting on-premises IT investments into so called "software defined" data centers. As for EMC's traditional, "core" storage business, again management has done a very good job sustaining profit share in an IT environment characterized by stagnating budgets and lengthening decision cycles. Over the past few product cycles, we've seen plenty of product cannibalization of EMC's existing product portfolio, which we think is a quite positive, albeit rare, trait for such a large, established IT shop - launching highly successful product lines (from a revenue standpoint) including: all-flash arrays; vendor agnostic cloud-based storage; and hyper-converged architectures and solutions, to name a few.

    However, management has noted that these products have meaningfully lower return profiles compared to previous cycles. We surmise that this shrinking profitability pie is related to the proliferation of pure cloud-based solutions, often used as a substitute to traditional on-prem solutions. While this is not a new trend, however, we are of the strong opinion the market significantly overestimates the available profits for these cloud-based players and we question the long-term viability of them as substitutes, especially should a more difficult funding environment emerge. That said, we have no edge in predicting the timing of such a macro-oriented event, and in the mean-time, EMC's highly profitable business must continue to compete with "not -for-profit" substitutes. Combined with several new investment opportunities that emerged during the quarter, and enforcing our self-imposed cap of 22 stocks, we decided to sell EMC from portfolios to fund more attractive ideas.


  • David Rolfe Comments on Berkshire Hathaway

    Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B)

    More often than not, we are asked “is Berkshire Hathaway a growth company?” We point to the trailing book-value per-share (BVPS) compounded growth of the Business, below:


  • David Rolfe Comments on Apple

    Apple (NASDAQ:AAPL) reported blockbuster year-over-year earnings growth of over 40%, driven by a healthy iPhone business which reported unit share take in every country. However, shares sold off as the market began its virtually seasonal questioning of Apple's long-term growth abilities. We continue to think Apple is capable of mid-to-high single digit revenue growth over the next several years, mostly attributed to the Company's massive (we estimate well over 500 million), upgradable installed unit base.

    Combined with increasing cost benefits due to their increasing scale, along with outsized cash balances and reduced share count, we believe Apple is capable of generating a double-digit rate of earnings per share growth over the next several years. We think Apple's highly repeatable upgrade base is a byproduct of their constant innovation across not just products, but also services and distribution, where Apple's efforts have been particularly disruptive given their scale.


  • David Rolfe Comments on Cognizant

    Cognizant (NASDAQ:CTSH) was volatile, but contributed to performance. Most of the volatility was related to a large client that was taken private and would not need Cognizant’s services going forward. The stock’s negative performance was reversed later in the quarter after they released record second quarter results with year-over-year revenue growth of over 22% and nearly 20% earnings growth. And to further shrug off investor's fear that the Company was losing a large client relationship, management raised full year revenue and earnings guidance.

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

  • Contest: Win a Free Ticket to the 2016 GuruFocus Value Conference

    Next April, GuruFocus will host its 2016 Value Conference in Omaha, Neb., featuring speakers such as Donald Yacktman (Trades, Portfolio), Chip Rewey, David Rolfe (Trades, Portfolio), and other renowned value investors. Two savvy stock-pickers will win a free ticket to the event, while another author will be selected to present their stock pick to our audience of analysts, professional and retail investors.

    To enter this contest, submit an article about your best value idea and why you believe the stock is a good opportunity. For the next few months, GuruFocus will review the performance of the stock picks to select the winners. Winners of the two free conference tickets will be chosen based on the stock’s performance, while the conference speaker will be selected based on both performance and quality of the article’s analysis.  

  • Wedgewood Partners 3rd Quarter 2015 Client Letter: The Guns of August

    Wedgewood Partners third quarter shareholder letter from David Rolfe, 2016 GuruFocus Conference speaker.



  • My Evolution as an 'Intrinsic Value Seeker'

    I’ve been asked many times, “What do you think the intrinsic value is for this company?” Two years ago my answer would be “the intrinsic value of this company is $50, if you assume x% of free cash flow growth in the next few years and y% terminal free cash flow growth and y% discount rate.” If you ask me this question today, I would say, “First of all, that depends on my opportunity cost, which is reflected in the discount rate I use and secondly, over what period of time?”

    This evolution comes from learnings from my personal experiences, and conversations with some of the best value investors such as Tom Russo (Trades, Portfolio), Donald Yacktman, David Rolfe, etc. In the first few years of my value investing journey, I was a firm believer of the conventional wisdom, which says whatever method you use, be it DCF, liquidation value or the Multiple approach, one should calculate the range of intrinsic value of the security and apply a margin of safety when buying the security. If the intrinsic value of the company according to your calculation is $100 per share, you pay $70.


  • David Rolfe on Apple Ahead of Product Launch

    Apple TV and iPad Pro could move the need at Apple (NASDAQ:AAPL) if they are disruptive and lucrative enough, Rolfe said, but the iPhone is most important.

  • Announcement: 2016 GuruFocus Value Conference, Omaha

    Over the years we have received a lot of requests from our subscribers about a gathering, especially a gathering at the Berkshire Hathaway Annual Meeting because many of us go there anyway. In order to serve our subscribers better we decided to host an annual GuruFocus Value Conference. The next conference will be on Friday, April 29, 2016, the day before the 2016 Berkshire Hathaway annual meeting.

    These are the details of the conference:


  • David Rolfe Discusses Top Holdings Qualcomm, Berkshire and Apple

    David Rolfe (Trades, Portfolio), manager of Wedgewood Partners, has conviction about three stocks: Qualcomm (NASDAQ:QCOM), Berkshire Hathaway (NYSE:BRK.B) and Apple (NASDAQ:AAPL), he told CNBC today:


  • Coach: Don’t Beat A Dead Horse

    If you bought Coach (NYSE:COH) stock July 25, 2005, you paid $36 at the open and $34.94 at the close. Today, the stock sits under $31 and while they have paid out $4.71 in dividends, after taxes, you are flat and your money is kicking you for it.

    Despite growing its revenue by 181% from $1.7 billion to $4.3 billion, accumulating over $7.4 billion in net income, more than tripling its book value, and buying back over 25% of the outstanding stock, the market value has gone exactly nowhere.


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