Jeremy Grantham (Trades, Portfolio)'s GMO LLC recently released its portfolio updates for the fourth quarter of 2020, which ended on Dec. 31.
Grantham is a co-founder and a member of the asset allocation team of Grantham, Mayo, Van Otterloo (GMO) & Co. LLC. The Boston-based asset management firm utilizes various long-term, value-based investment strategies that focus on risk management and diversification. Grantham is known for his success in consistently identifying and avoiding stock market bubbles, including the Japanese market bubble in the late eighties, tech and internet stocks in the late nineties and credit markets in 2006.
During the quarter, GMO's most significant sells were Philip Morris International Inc. (PM, Financial) and Starbucks Corp. (SBUX, Financial), while its biggest buys were the BTC iShares Core S&P 500 ETF (IVV, Financial) and Wells Fargo & Co. (WFC, Financial).
Philip Morris International
The firm sold out of its 2,017,359-share stake in Philip Morris International (PM, Financial), impacting the equity portfolio by -1.08%. During the quarter, shares traded for an average price of $77.91.
Philip Morris is perhaps the world's most iconic cigarette and tobacco company. Based in New York, the Swiss-domiciled company owns famous brands such as Marlboro that are sold in 180 markets globally. The company is shifting focus and aims to transition its customers to smoke-free tobacco products.
On Feb. 18, shares of Philip Morris traded around $86.33 for a market cap of $134.45 billion and a price-earnings ratio of 16.68. According to the GuruFocus Value chart, the stock is fairly valued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.23 is lower than 69% of industry peers, but the Altman Z-Score of 4 indicates the company is not in danger of bankruptcy. The three-year revenue growth rate is -0.2%, while the three-year Ebitda growth rate is 0.2%.
Starbucks
GMO also sold out of its 1,180,787-share investment in Starbucks (SBUX, Financial), which had a -0.72% impact on the equity portfolio. Shares traded for an average price of $95.62 during the quarter.
The iconic coffeehouse chain was founded in Seattle in 1971. Since then, it has become one of the most well-known chains in the U.S., with one or two stores in nearly every major urban and suburban neighborhood in the country and a growing international presence.
On Feb. 18, shares of Starbucks traded around $105.17 for a market cap of $123.80 billion and a price-earnings ratio of 187.8. According to the GuruFocus Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 8 out of 10. The Altman Z-Score of 2.5 implies the company might be facing some financial stress, but the Piotroski F-Score of 6 out of 9 is typical of a financially stable company. The return on invested capital is typically higher than the weighted average cost of capital, so growth has been profitable for the company in most years.
BTC iShares Core S&P 500 ETF
The firm established a new holding worth 257,200 shares in the BTC iShares Core S&P 500 ETF (IVV, Financial) after selling out of its previous stake in the exchange-traded fund in the first quarter of 2020. The trade had a 0.59% impact on the equity portfolio. During the quarter, shares traded for an average price of $355.
The IVV ETF seeks to track the performance of the S&P 500 by investing at least 90% of its assets in securities and depository receipts of the stocks in the underlying index. It may also invest the remaining 10% in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the underlying index.
On Feb. 18, the IVV ETF traded around $392.48 per share for a market cap of $253.82 billion and a price-earnings ratio of 28.22. Over the past 12 months, it has gained 18%.
Wells Fargo
The firm increased its Wells Fargo (WFC, Financial) position by 2,658,827 shares, or 29.05%, for a total investment of 11,812,033 shares. The trade had a 0.49% impact on the equity portfolio. Shares traded for an average price of $25.93 during the quarter.
Wells Fargo is a U.S. bank major that is still reeling from the aftershocks of a fake account scandal back in 2016. After the incident, Wells Fargo was subject to restrictions such as an asset cap. Recently, the Federal Reserve has signaled it will accept Wells Fargo's plan to overhaul its governance functions, which is key if they bank wants to ease its regulatory restrictions.
On Feb. 18, shares of Wells Fargo traded around $37.12 for a market cap of $153.80 billion and a price-earnings ratio of 90.53. According to the GuruFocus Value chart, the stock is modestly undervalued.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 5 out of 10. While the cash-debt ratio of 0.97 is below 62% of other companies in the industry, the Piotroski F-Score of 5 out of 9 indicates financial stability. The return on equity of 0.93% and return on assets of 0.17% are worse than 90% of peers.
Portfolio overview
As of the quarter's end, the firm held common shares in 793 stocks valued at a total of $16.28 billion. The top holdings were Microsoft Corp. (MSFT, Financial) with 4.19% of the equity portfolio, Apple Inc. (AAPL, Financial) with 3.55% and UnitedHealth Group Inc. (UNH, Financial) with 3.37%.
In terms of sector weighting, the firm was most invested in technology, health care and financial services.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.
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