David Rolfe (Trades, Portfolio), the chief investment officer of Wedgewood Partners, disclosed his equity portfolio for the fourth quarter of 2022 earlier this month.
The guru's St. Louis-based firm approaches potential investments with the mindset of a business owner, striving to generate significant long-term wealth by analyzing a handful of undervalued companies that have a dominant product or service, consistent earnings, revenue and dividend growth, are highly profitable and have strong management teams.
He will be a guest speaker at the 2023 GuruFocus Value Conference in May. Seats are limited, so reserve your spot before prices go up on March 1.
In his shareholder letter for the three-month period ended Dec. 31, Rolfe noted the Federal Reserve’s “pace of tightening has been among the sharpest in decades.” With a growing list of leading economic indicators warning of a recession, he continued:
“We continue to be concerned - what we worry about most - in 2023 is a soft or hard landing in corporate earnings. The U.S. consumer has thus far been resilient in their spending. Even though post-Pandemic spending has slowed, it remains positive. Given that the U.S. consumer has long represented about 70% of GDP, even if the manufacturing sector falls into a mild recession, as it did in 2015 to 2016 and 2019, the U.S. may keep the greater U.S. economy out of one. That said, any type of recessionary risk means significant risk for corporate profits. That is our continued worry.”
Keeping these considerations in mind, Rolfe’s 13F filing shows he entered three new positions, sold out of two stocks and added to or trimmed a number of other existing investments during the quarter. The most significant trades included a boost to the First Republic Bank (FRC, Financial) holding and reductions of the Meta Platforms Inc. (META, Financial), Progressive Corp. (PGR, Financial), Texas Pacific Land Corp. (TPL, Financial) and Starbucks Corp. (SBUX, Financial) positions.
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
First Republic Bank
The guru increased the First Republic Bank (FRC, Financial) position by 22.04%, buying 33,250 shares. The transaction had an impact of 0.74% on the equity portfolio. The stock traded for an average price of $122.04 per share during the quarter.
Rolfe now holds 184,096 shares in total, accounting for 4.12% of the equity portfolio. GuruFocus estimates he has gained 9.59% on the investment so far.
The San Francisco-based bank, which offers private banking and wealth management services, has a $23.52 billion market cap; its shares were trading around $128.32 on Friday with a price-earnings ratio of 15.29, a price-book ratio of 1.74 and a price-sales ratio of 4.11.
The GF Value Line suggests the stock is significantly undervalued currently based on its historical ratios, past financial performance and future earnings projections.
At 84 out of 100, the GF Score indicates the company has good outperformance potential. While it received high ratings for profitability, growth and GF Value, the momentum rank was more moderate and financial strength was low.
Of the gurus invested in First Republic, Baillie Gifford (Trades, Portfolio) has the largest stake with 1.49% of its outstanding shares. Diamond Hill Capital (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Elfun Trusts (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and several other gurus also own the stock.
Meta Platforms
Rolfe curbed the Meta Platforms (META, Financial) investment by 20.4%, selling 41,027 shares and impacting the equity portfolio by -1.05%. Shares traded for an average price of $117.43 each during the quarter.
The guru now holds 160,091 shares in total, occupying 3.54% of the equity portfolio. He has lost an estimated 0.55% on the long-held investment according to GuruFocus data. It was previously his 10th-largest holding.
The social media company formerly known as Facebook, which is headquartered in Menlo Park, California, has a market cap of $442.56 billion; its shares were trading around $170.70 on Friday with a price-earnings ratio of 20.10, a price-book ratio of 3.59 and a price-sales ratio of 3.99.
According to the GF Value Line, the stock is significantly undervalued currently.
Further, the GF Score of 89 indicates the company has good outperformance potential on the back of high ranks for profitability, growth and financial strength and middling marks for GF Value and momentum.
Despite detracting from performance, Rolfe wrote in his letter that Meta has recorded “impressive gains” in its advertising revenue and number of daily active users, but “now trades at absolute levels well below where it traded before the pandemic.”
“Much of the market's concern revolves around slowing revenue growth and aggressive reinvestment,” he said. “It is now quite evident that there was a tremendous pull-forward of demand for many businesses and services over the past couple of years. The normalization of revenue growth from that pull-forward is hardly an existential crisis. Further, while Meta's profit margins have fallen below pre-Pandemic levels, the business likely hired well in excess of what it needed because it assumed the Pandemic induced growth would continue. Meta has plenty of room to moderate its expense base and drive significant value by repurchasing shares at today's historically depressed multiples.”
With a 0.45% stake, Dodge & Cox is Meta’s largest guru shareholder. Other top guru investors include Fisher, Chase Coleman (Trades, Portfolio), Chris Davis (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Philippe Laffont (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).
Progressive
The investor trimmed the Progressive (PGR, Financial) holding by 20.90%, selling 37,320 shares. The transaction impacted the equity portfolio by -0.82%. During the quarter, the stock traded for an average per-share price of $126.72.
Rolfe now holds a total of 141,210 shares, which represent 3.36% of the equity portfolio. GuruFocus found he has gained 40.56% on the investment so far.
The Mayfield, Ohio-based insurance company has an $83.16 billion market cap; its shares were trading around $142.18 on Friday with a price-earnings ratio of 121.52, a price-book ratio of 5.23 and a price-sales ratio of 1.69.
Based on the GF Value Line, the stock appears to be modestly overvalued currently.
The company has good outperformance potential due to the GF Score of 85, driven by high ratings for profitability and growth, moderate momentum and financial strength ranks and low GF Value.
PRIMECAP Management (Trades, Portfolio) is Progressive’s largest guru shareholder with a 0.26% stake. It is also being held by the Parnassus Endeavor Fund, Tom Gayner (Trades, Portfolio), Simons’ firm, Andreas Halvorsen (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and many other gurus.
Texas Pacific Land
Rolfe’s Texas Pacific Land (TPL, Financial) position was whittled down by 19.1%, selling 2,001 shares. The transaction had an impact of -0.67% on the equity portfolio. The stock traded for an average price of $2,385.38 per share during the quarter.
He now holds 8,473 shares in total, which make up 3.65% of the equity portfolio. GuruFocus says he has gained an estimated 50.56% on the investment over its lifetime.
Headquartered in Dallas, the company, which leases land to oil and gas companies while retaining the mineral rights, has a market cap of $13.99 billion; its shares were trading around $1,816 on Friday with a price-earnings ratio of 32.99, a price-book ratio of 19.41 and a price-sales ratio of 21.22.
The GF Value Line suggests the stock is modestly undervalued currently.
Additionally, the GF Score of 97 means the company has high outperformance potential. It raked in high ratings for three of the criteria, but the GF Value and momentum ranks were more moderate.
A top contributor for both the quarter and the full year on the back of high energy prices and production, Rolfe noted in his letter that he “expect[s] that development activity will continue to grow at a rapid pace in this region, primarily driven by both domestic and multinational producers looking to maximize returns on increasingly scarce oil and gas capital expenditures.”
Of the gurus invested in the stock, Murray Stahl (Trades, Portfolio) has the largest stake with 18.61% of its outstanding shares. Mario Gabelli (Trades, Portfolio) and Cohen also have positions in Texas Pacific Land.
Starbucks
Impacting the equity portfolio by -0.31%, the investor slashed the Starbucks (SBUX, Financial) position by 77.96%, or 19,795 shares. The stock traded for an average price of $94.37 per share during the quarter.
In total, Rolfe now holds 5,595 shares, giving it 0.10% space in the equity portfolio. GuruFocus data shows he has gained about 23.51% on the investment since the first quarter of 2019.
The Seattle-based coffee chain has a $123.12 billion market cap; its shares were trading around $107.13 on Friday with a price-earnings ratio of 37.33 and a price-sales ratio of 3.75.
According to the GF Value Line, the stock is fairly valued currently.
The company has good outperformance potential based on its GF Score of 85. It received high ratings for profitability and growth, but only middling marks for the other three criteria.
With a 0.89% stake, Fisher is Starbucks’ largest guru shareholder. Other top guru investors include Dalio’s firm, Baillie Gifford (Trades, Portfolio), Gayner, Lee Ainslie (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio).
Additional trades and portfolio performance
During the quarter, Rolfe also entered small positions in the Invesco QQQ Trust (QQQ, Financial), Tapestry Inc. (TPR, Financial) and Ford Motor Co. (F, Financial) as well as divested of its PepsiCo Inc. (PEP, Financial) and Exxon Mobil Corp. (XOM, Financial) holdings.
Wedgewood's $544 million equity portfolio, which is composed of 41 stocks, is most heavily invested in the technology and financial services sectors.
The firm posted a return of -25.4% for 2022, underperforming the S&P 500 Index's -18.11% return.
