Spiros Segalas (Trades, Portfolio), manager of the Harbor Capital Appreciation Fund, disclosed on Tuesday his firm trimmed its position in top Warren Buffett (Trades, Portfolio) holding Apple Inc. (AAPL, Financial) and introduced two new positions during the three months ending Jan. 31: Lululemon Athletica Inc. (LULU, Financial) and American Tower Corp. (AMT, Financial).
Segalas’ fund, subadvised by Jennison Associates LLC, invests primarily in U.S. companies that meet the following investing criteria: strong balance sheets, high sales momentum, good profitability potential, unique market position and committed management. As of quarter-end, the equity portfolio contains 55 stocks, including two new holdings.
Segalas and co-portfolio manager Kathleen McCarragher said in their December shareholder letter that the fund returned -16.40% for the quarter, underperforming the Russell 1000 Growth Index’s return of -15.89%. Although stock selection was positive for the quarter, several sectors detracted from returns, including consumer staples, health care and communication services.
Despite the poor quarter, Segalas and McCarragher reiterated the fund’s long-term investment approach, believing their “disciplined, research-intensive approach” allows them to construct a portfolio with potential for “above-average returns over the longer term.” Entering 2019, the fund believes the U.S. economy “remains on sound footing” and the market “will value [the fund’s holdings] appropriately over the long term.”
Fund trims stake in Apple
Segalas’ fund axed 28.99% of its position in Apple, selling 1,873,262 shares for an average price of $169.54 per share. The transaction pared 1.40% of the equity portfolio.
Segalas said Apple detracted from portfolio performance as the company’s decision to discontinue reporting unit sales “coincided with weakening order trends in provider channels.” Apple announced in last week’s special event new streaming services like Apple TV Channels and Apple TV+, something the Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO said could become a “potential mistake” during his interview with CNBC anchor Becky Quick.
GuruFocus ranks Apple’s profitability 8 out of 10: even though operating margins have declined 1.9% per year over the past five years, the company's margins and returns are still outperforming over 96% of global competitors.
Buffett’s conglomerate owns 249,589,329 shares of Apple as of the quarter ending Dec. 31, 2018. Other gurus with large holdings in Apple include Ken Fisher (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).
Lululemon
Segalas’ fund invested in 2,098,352 shares of Lululemon for an average price of $132.04 per share, giving the stake 1.07% equity portfolio weight.
The Vancouver, Canada-based company designs and retails yoga-inspired athletic apparel through its namesake brands. GuruFocus ranks Lululemon’s financial strength and profitability 9 out of 10 on several positive investing signs, which include a solid Piotroski F-score of 8 and a robust Altman Z-score of 24.31. Additionally, the company’s profit margins are outperforming over 95% of global competitors despite contracting 2.9% per year over the past five years.
Steven Cohen (Trades, Portfolio) also increased his holding of Lululemon during the quarter.
American Tower
Segalas’ fund invested in 1,014,460 shares of American Tower for an average price of $161.93 per share, giving the position 0.60% equity weight.
American Tower engages in the development of multitenant communications real estate: The Boston-based REIT leases the space of communications sites to wireless service and data providers.
GuruFocus ranks the company’s profitability 9 out of 10 on several positive investing signs, which include profit margins that outperform 90% of global competitors and a three-year revenue growth rate that outperforms 86% of global competitors. Additionally, the company’s business predictability ranks a perfect five stars out of five.
Despite strong profitability, American Tower’s financial strength ranks a poor 4 out of 10 on several warning signs, which include low interest coverage and a debt-to-EBITDA ratio above Joel Tillinghast’s safe threshold of 4.
Disclosure: No positions.
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