The Parnassus Endeavor Fund (Trades, Portfolio) released its first-quarter portfolio earlier this week, listing three new holdings.
The fund, which is part of Jerome Dodson (Trades, Portfolio)’s San Francisco-based Parnassus Investments, avoids investing in fossil fuel-related stocks. Rather, it prefers companies that have exemplary work environments and are known for being socially and environmentally responsible. With the goal of capital appreciation, the portfolio managers invest in discounted large-cap companies that have strong competitive advantages, relevant products and quality management teams.
With these criteria in mind, the fund established positions in FedEx Corp. (FDX, Financial), VF Corp. (VFC, Financial) and Bank of America Corp. (BAC, Financial) during the quarter.
FedEx
The fund invested in 1.2 million shares of FedEx, allocating 5.66% of the equity portfolio to the stake. The stock traded for an average price of $141.50 per share during the quarter.
The Memphis, Tennessee-based courier company has a $31.95 billion market cap; its shares were trading around $124.21 on Monday with a forward price-earnings ratio of 12.07, a price-book ratio of 1.72 and a price-sales ratio of 0.47.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 7 out of 10, however, leans more toward undervaluation
GuruFocus rated FedEx’s financial strength 4 out of 10. Although the company has issued approximately $3.8 billion in new long-term debt over the past three years, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 1.92, however, indicates it is under some pressure since its weighted average cost of capital is greater than its return on invested capital, which implies it may not be capital efficient.
The company’s profitability fared a bit better with a 7 out of 10 rating, driven by an expanding operating margin. It has negative returns that underperform a majority of competitors, however, and a low Piotroski F-Score of 3, which indicates business conditions are in poor shape. Due to a slowdown in revenue growth over the past 12 months, the business predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank typically return an average of 1.1% per annum over a 10-year period.
Of the gurus invested in FedEx, Dodge & Cox has the largest stake with 10.31% of outstanding shares. Other top guru shareholders include PRIMECAP Management (Trades, Portfolio), Bill Gates (Trades, Portfolio)’ foundation trust, Mason Hawkins (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Bill Nygren (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio), Hotchkis & Wiley, Jeff Ubben (Trades, Portfolio) and Stanley Druckenmiller (Trades, Portfolio).
VF Corp.
After exiting a position in VF in the third quarter of 2018, the Endeavor Fund entered a new 1.9 million-share stake. The trade had an impact of 4% on the equity portfolio. During the quarter, shares traded for an average price of $76.81 each.
The apparel and footwear manufacturer, which is headquartered in Denver, has a market cap of $22.79 billion; its shares were trading around $57.56 on Monday with a price-earnings ratio of 17.99, a price-book ratio of 4.98 and a price-sales ratio of 1.89.
According to the Peter Lynch chart, the stock is overvalued. The GurFocus valuation rank of 3 out of 10 supports this assessment.
VF’s financial strength was rated 6 out of 10 by GuruFocus on the back of comfortable interest coverage and a high Altman Z-Score of 4.23, which indicates it is in good standing.
The company’s profitability scored a 7 out of 10 rating. Even though its operating margin is in decline, it still outperforms over 80% of its industry peers. VF is also supported by strong returns and a moderate Piotroski F-Score of 4, which suggests operations are stable. Despite recording a decline in revenue per share over the past five years, the company has a three-star business predictability rank. GuruFocus says companies with this rank typically return 8.2% per year.
With its purchase of a 0.48% stake, the fund is now the company’s largest guru shareholder. Pioneer, PRIMECAP, Dodson, Steven Cohen (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates, Joel Greenblatt (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) also own the stock.
Bank of America
Parnassus picked up 3 million shares of Bank of America, dedicating 2.48% of the equity portfolio to the stake. During the quarter, the stock traded for an average per-share price of $30.21.
The Charlotte, North Carolina-based bank has a $211.75 billion market cap; its shares were trading around $23.96 on Monday with a price-earnings ratio of 8.75, a price-book ratio of 0.88 and a price-sales ratio of 2.48.
Based on the Peter Lynch chart, the stock appears to be undervalued. The GuruFocus valuation rank of 4 out of 10, however, leans more toward overvaluation.
Weighed down by approximately $16.9 billion in new long-term debt, GuruFocus rated Bank of America’s financial strength 3 out of 10.
The bank’s profitability did not fare much better with a 4 out of 10 rating. It is supported, however, by margins and returns that outperform at least half of its competitors and a one-star business predictability rank.
Warren Buffett (Trades, Portfolio) is the company’s largest guru shareholder with a 10.6% stake. Other top guru investors include Dodge & Cox, PRIMECAP, Nygren, Pioneer, Hotchkis & Wiley, Richard Pzena (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio), Steven Romick (Trades, Portfolio) and Charles de Vaulx (Trades, Portfolio).
Additional trades and portfolio performance
During the quarter, the Endeavor Fund also added to several holdings, including Expeditors International of Washington Inc. (EXPD, Financial), Agilent Technologies Inc. (A, Financial), Alliance Data Systems Corp. (ADS, Financial), Apple Inc. (AAPL, Financial), Alaska Air Group Inc. (ALK, Financial), Mastercard Inc. (MA, Financial), W.W. Grainger Inc. (GWW, Financial), Capital One Financial Corp. (COF, Financial) and Gap Inc. (GPS, Financial).
Nearly 40% of Parnassus’ $2.57 billion equity portfolio, which is composed of 27 stocks, is invested in the technology sector, followed by smaller positions in the financial services (21.64%) and industrials (20.09%) spaces.
According to its website, the Endeavor Fund posted a return of 33.29% in 2019, topping the S&P 500 Index’s 31.49% return.
Disclosure: No positions.
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