Primecap Management, a media-shy firm with strong returns, purchased 14 new stocks in the fourth quarter, it reported Tuesday.
Primecap held 286 stocks including the new buys at the end of the fourth quarter. It had 34% of the stock portfolios in technology, the largest second, and 25.7% of holdings in health care.
The California-based firm manages the Odyssey Funds, which have outperformed the benchmark S&P 500 index over the long and short term. The Odyssey Stock Fund returned 25.96% year to date, compared to the 21.83% return for the index. Annualized since inception in 2004, the fund returned 10.76%, beating the 9.02% in the index.
In its shareholder letter for the year ended Oct. 31, the managers shared their thinking on the economy and investing:
Looking forward, we are constructive on the U.S. economic outlook. The current political environment could lead to deregulation and potentially lower taxes, which would support greater economic growth and corporate profits. As previously mentioned, we believe the U.S. banking system is far better capitalized than it was prior to the last financial crisis, lending further support to the economy. Real GDP growth has picked up recently, exceeding 3% in each of the past two quarters. The unemployment rate reached a new post-recession low of 4.1% in October, and real median household income is at record levels.
Even after a strong, multi-year run, U.S. equities currently trade for approximately 18x forward earnings per share, a reasonable valuation by historical standards. We believe this valuation compares favorably to bonds, with the U.S. 10-year Treasury Bond yielding approximately 2.4%. After holding flat at around $119 per share for three consecutive years, S&P 500 operating earnings per share are expected to grow 10% in 2017 to $132 per share, with double-digit growth currently forecasted for 2018. Ongoing earnings per share growth could support further S&P 500 stock price appreciation.
Its largest new buys in the fourth quarter were: Ryanair Holdings PLC (RYAAY, Financial), Altair Engineering Inc. (ALTR, Financial), Entercom Communications Corp. (ETM, Financial), Pros Holdings Inc. (PRO, Financial), Restaurant Brands International Inc. (QSR, Financial), Ulta Beauty Inc. (ULTA, Financial) and Acuity Brands Inc. (AYI, Financial).
Ryanair Holdings PLC (RYAAY, Financial)
Primecap purchased 519,000 shares of Ryanair Holdings, which had an average price of $111 for the fourth quarter. The holding represented 0.04% of the portfolio.
Ryanair Holdings PLC has a market cap of $23.2 billion; its shares were traded around $118.26 with a P/E ratio of 13.29 and P/S ratio of 2.78. Ryanair Holdings PLC had an annual average earnings growth of 18.40% over the past 10 years. GuruFocus rated Ryanair Holdings PLC the business predictability rank of 2.5-star.
Altair Engineering Inc. (ALTR, Financial)
Primecap purchased 1,012,400 shares of Altair Engineering, which had a fourth-quarter average price of $22. The holding represented 0.02% of the stock portfolios.
Altair Engineering Inc. has a market cap of $683.380 million; its shares were traded around $25.89.
Entercom Communications Corp. (ETM, Financial)
Primecap purchased 1,561,538 shares of Entercom Communications, which had an average share price of $11 in the fourth quarter. The holding represented 0.01% of the stock portfolios.
Entercom Communications Corp. has a market cap of $1.43 billion; its shares were traded around $10.05 with a P/E ratio of 38.65 and P/S ratio of 0.87. The trailing 12-month dividend yield of Entercom Communications Corp. stocks is 3.14%. The forward dividend yield of Entercom Communications Corp. stocks is 3.67%. Entercom Communications Corp. had an annual average earnings growth of 1.70% over the past five years.
Pros Holdings Inc. (PRO, Financial)
Primecap purchased 609,087 shares of Pros Holdings, which had an average share price of $25 in the fourth quarter. The holding represented 0.01% of the stock portfolios.
Pros Holdings Inc. has a market cap of $982.130 million; its shares were traded around $30.75 with a P/S ratio of 5.75.
Restaurant Brands International Inc. (QSR, Financial)
Primecap purchased 215,000 shares of Restaurant Brands International, which had an average share price of $64 in the fourth quarter. The holding represented 0.01% of the stock portfolios.
Restaurant Brands International Inc. has a market cap of $13.99 billion; its shares were traded around $57.89 with a P/E ratio of 38.74 and P/S ratio of 5.95. The trailing 12-month dividend yield of Restaurant Brands International Inc. stocks is 1.35%. The forward dividend yield of Restaurant Brands International Inc. stocks is 1.40%.
Ulta Beauty Inc. (ULTA, Financial)
Primecap purchased 51,400 shares of Ulta Beauty, which had an average share price of $211 in the fourth quarter. The holding represented 0.01% of the portfolios.
Ulta Beauty Inc. has a market cap of $12.65 billion; its shares were traded around $207.35 with a P/E ratio of 26.52 and P/S ratio of 2.33. Ulta Beauty Inc. had an annual average earnings growth of 27.40% over the past 10 years. GuruFocus rated Ulta Beauty Inc. the business predictability rank of 4.5-star.
Acuity Brands Inc. (AYI, Financial)
Primecap purchased 55,500 shares of Acuity Brands, which had an average share price of $166 in the fourth quarter. The holding represented 0.01% of the portfolios.
Acuity Brands Inc. has a market cap of $6.27 billion; its shares were traded around $148.62 with a P/E ratio of 20.45 and P/S ratio of 1.84. The trailing 12-month dividend yield of Acuity Brands Inc. stocks is 0.35%. The forward dividend yield of Acuity Brands Inc. stocks is 0.35%. Acuity Brands Inc. had an annual average earnings growth of 9.60% over the past 10 years.
See Primecap’s portfolio here.
