During the third quarter, gurus invested primarily in consumer cyclical and technology companies. Such companies have strong financial strength and high profitability. Several of these companies, including Alphabet Inc. (GOOG) (GOOGL, Financial), Apple Inc. (AAPL, Financial), Alibaba Group Holding Ltd. (BABA, Financial), The Priceline Group Inc. (PCLN, Financial), Amazon.com Inc. (AMZN, Financial) and The Walt Disney Co. (DIS, Financial), have a predictability rank of at least three stars. High guru ownership and number of guru buys suggest good value potential in the consumer cyclical and technology sectors.
Tracking “favorite” gurus with Personalized Guru Lists
As a premium member of GuruFocus, you have access to portfolio data for over 150 gurus. With the “Personalized Guru List” feature, you can select which gurus to follow based on your investing style. To access the “Personalize my Guru List” pop-up window, you can either click on “Modify your Personal List of Gurus” from any page with the gear symbol or the “Add/Remove Gurus” link directly on the “List of Gurus (Personalize)” page. Figure 1 shows a screen shot of the “Personalize my Guru List” pop-up window.
Figure 1
You can search for your “favorite” gurus in several ways, as indicated in the gray box titled “Gurus Filter”: name, country, last update, number of stocks, total value and turnover ratio. If you want to follow a specific guru, you can type that guru’s name in the “Guru Name” box. Otherwise, you can easily search for gurus matching your investing thesis by implementing the other filters. Please refer to the user manual for further details on creating personalized lists.
Figure 2 shows a sample personalized list with six well-known gurus: Warren Buffett (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio), Stanley Druckenmiller (Trades, Portfolio), Carl Icahn (Trades, Portfolio), David Tepper (Trades, Portfolio) and George Soros (Trades, Portfolio).
Figure 2
Understanding the Aggregated Portfolio
Once you finish creating your personalized list of gurus, you can track the aggregated portfolio of all the gurus selected. As the name suggests, the aggregated portfolio collects all of your selected gurus’ portfolios and combines them into one large portfolio. Figure 3 lists the 10 companies with the largest combined weighting of 126 U.S. Premium gurus.
Figure 3
The aggregated portfolio reports several characteristics, including the number of guru owners, the number of guru buys and sells in the prior quarter and the combined weightings for each of the companies listed. You can sort the 50 companies by clicking the up / down arrows next to the column headings.
As illustrated in Figure 3, Microsoft Corp. (MSFT), Wells Fargo and Co. (WFC) and Berkshire Hathaway Inc. (BRK.A, Financial) (BRK.B) have the top three combined weightings among the 126 gurus selected.
Statistical analysis on the aggregated portfolio identifies the best sectors
Premium members can download the aggregated portfolio to Excel and run statistical analysis on the portfolio using Excel features. The following statistical study first groups the 50 companies into sectors. We then take the average of the companies’ combined weightings, number of guru owners and number of net guru buys during the third quarter for each of the sectors.
Figure 4 summarizes the sector data: the blue bars represent the average number of guru owners while the purple bars represent the average number of net third-quarter guru buys for each sector. The black line shows the average percent combined weightings.
Figure 4
As shown in Figure 4, the technology sector has the highest average number of guru owners and the highest average combined weighting among the sectors. Additionally, the consumer cyclical sector has one net guru buy during the third quarter. This suggests that gurus prefer to own technology companies and are mainly bullish on consumer cyclical companies. The rest of this article will highlight nine of the broadest owned companies from the aggregated portfolio.
As technology stocks have high profitability and strong Altman Z-scores, gurus have high ownership in the technology sector. Facebook Inc. (FB, Financial) has the highest Altman Z-score among the nine companies featured in Figure 5.
Figure 5
The social media company also has a financial strength rank of a perfect 10 and a profitability rank of 7, the latter likely due to strong third-quarter performance. Tepper, portfolio manager of Appaloosa Management, purchased nearly 1.5 million shares at an average price of $124.14 per share during the third quarter. The total transaction cost is over $186 million.
Facebook and online travel company Priceline have the highest gross margin among the nine companies, as illustrated in Figure 6. Such companies likely have durable competitive advantage, suggesting strong growth potential in the short term.
Figure 6
Despite its four-digit stock price, Priceline still offers high growth potential based on its profitability rank of 9 and predictability rank of 5-stars. The online travel company produced strong third-quarter results, including a 22% increase in gross profit. The strong quarterly results likely contributed to consistent gross margin growth over the past 10 years. As the company offers high growth potential, Louis Moore Bacon (Trades, Portfolio) invested about $20.3 million in Priceline during the third quarter, purchasing 14,500 shares at an average price of $1,393.91.
Priceline and rival consumer cyclical company Amazon both have a five-star predictability rank as illustrated in Figure 7.
Figure 7
Unlike Priceline, which sells travel products, Amazon sells specialty retail goods. Even though it only has a profitability rank of 7, Amazon’s financial strength ranks slightly higher than Priceline’s, likely due to a higher return on invested capital and cash-to-debt ratio. The former is about three times its WACC and the latter outperforms 64% of global specialty retail companies. Additionally, Amazon has about $2.24 in cash for every $1 in debt, compared to just 60 cents for Priceline.
Conclusions and see also
As technology and consumer cyclical companies offer high growth potential, gurus have expanded their technology and consumer cyclical empires.
You can find more good companies with the All-in-one Guru Screener, our all-inclusive value screener with over 150 predefined filters.
The Most Weighted Portfolio consists of the 25 companies with the highest combined weighting among all gurus. Similarly, the Most Broadly Held Portfolio consists of the 25 companies with the highest number of guru owners. Both model portfolios, especially the latter, have generally outperformed the Standard & Poor’s 500 index every year since 2006. Likely due to this, the Aggregated Portfolio strategy works well in a significantly overvalued stock market.
Premium members have access to all value screeners, over 150 gurus’ portfolios, real-time picks and Excel downloads. The premium plus membership gives further access, including up to 10-years of backtesting, the Manual of Stocks for all companies subscribed, and full Excel Add-in / API access. If you are not a member, we invite you to a free seven-day trial.
Disclosure: The author has no postion in the stocks mentioned in this article.
