David Rolfe

David Rolfe

Last Update: 05-15-2017

Number of Stocks: 37
Number of New Stocks: 3

Total Value: $3,883 Mil
Q/Q Turnover: 10%

Countries: USA
Details: Top Buys | Top Sales | Top Holdings  Embed:

David Rolfe Watch

  • David Rolfe Gains 3 Holdings, Sells 2 Others in 1st Quarter

    Wedgewood Partners’ David Rolfe (Trades, Portfolio) gained three new holdings during the first quarter and sold two others. His new positions are Edwards Lifesciences Corp. (NYSE:EW), Celgene Corp. (NASDAQ:CELG) and Boeing Co. (NYSE:BA).

    As Wedgewood’s chief investment officer, Rolfe believes long-term wealth is created by investing as owners of a company. The firm seeks profitable companies with a dominant product or service that grows its earnings, revenues and dividends consistently. Shareholder-friendly management is another quality the investment team values. Rolfe’s current portfolio is composed of 37 stocks, which is valued at $3.8 billion.


  • Bargain Stocks With High Dividend Yields

    According to the GuruFocus All-in-One Screener, the following stocks have high dividend yields but performed poorly over the past 12 months.

    Eaton Vance Ohio Municipal Income Trust’s (EVO) dividend yield is 4.74% with a payout ratio of 168%. Over the past 52 weeks, the price has declined by 7.2%. The stock is now trading with a price-earnings (P/E) ratio of 40.4 and a price-sales (P/S) ratio of 14.9.


  • David Rolfe Comments on Visa

    Visa (NYSE:V) was a top performer during the Quarter, bouncing back after detracting during the 4th Quarter. Not much changed over that timeframe; however, constant-dollar payment volume growth and cross border volume growth continued accelerating across several key markets as Visa has gained share, which helped the Company post adjusted earnings per share growth of +23% during the December Quarter. We think the recent acquisition of Visa Europe should provide the Company with continued opportunities for growth, not only from a cost savings standpoint but also from a revenue perspective. Several European markets have card payment share that remains significantly under-penetrated relative to cash, when compared to the U.S., so the shift towards e-commerce should continue to aid Visa’s value proposition. The Company maintains a conservative balance sheet, with a substantial amount of offshore cash, and the stock’s valuation continues to be attractive, especially relative to the Company’s high-teen growth profile for the next several years.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners first-quarter 2017 shareholder letter.   

  • David Rolfe Comments on Treehouse Foods

    Treehouse Foods (NYSE:THS) was one of our better performers in the first quarter. Remember that we added to our position on weakness in Q4, after what we viewed as a confluence of unfortunate, shorter-term events, plus we saw a lot of reassurance in the Company’s Q4 report that our long-term thesis remains intact. In the fourth quarter, revenues rebounded in the acquired Private Brands business; the Company continued to deliver on Private Brands synergies and cost savings; and the legacy Treehouse business continued to report healthy volume growth, which was well ahead of the broad industry, along with improving margins. Furthermore, there were several signs within the quarter that large retailers were aggressively culling their business with major brands and shifting more shelf space to private label programs, as traditional branded food players continue to struggle with declining volumes, and as established retailers face competition from alternative retailers such as Aldi and Trader Joe’s, both of which depend heavily on private label. This industry-wide shift to private label share has been trending for many years and remains a primary tenet of our long-term thesis for Treehouse, and this shorter -term plateau shift in share gains validates our longer-term thinking. Finally, we see it as likely that the Company should be able to deliver results ahead of market expectations as we move through 2017, given that the Company has factored roughly flat earnings growth in its legacy business into its full-year guidance, yet the strong results of this business in recent quarters, as well as the signs we are seeing of an acceleration in near-term private label share gains across the industry, lead us to believe that this guidance will prove conservative. Over the longer term, we remain believers in the Company’s ability to deliver healthy growth in earnings and cash flows as it wrings value from the Private Brands acquisition, consolidates the growing private label industry, and diverts its internal resources to higher-growth/higher-margin categories while continually removing operating costs.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners first-quarter 2017 shareholder letter.   

  • David Rolfe Comments on Tractor Supply

    Tractor Supply (NASDAQ:TSCO) was one of the largest detractors from our first quarter performance, as the stock retraced some of the gains it had posted after we purchased it last quarter. We think a large portion of both the Q4 spike and the Q1 decline in the stock can be attributed to political and energy-related noise, with the stock correctly viewed as a potential beneficiary from a possible reduction in U.S. corporate tax rates and a recovery in U.S. energy production. On the tax front, the Company’s business is entirely U.S.-based, leaving it with a relatively high tax rate in comparison to companies with multinational operations; this means that it would be a greater relative beneficiary than these other companies if the U.S. corporate tax rate were to decline. As the market quickly moved from optimism to pessimism on the potential for such a tax cut, the stock moved accordingly. Our stance is that we would be perfectly happy to see a lower tax rate for Tractor Supply, but that is not a tenet of our long-term thesis. On the energy front, we estimate a minority of TSCO’s end-markets are in regions exposed to the fortunes of the energy industry. As we discuss elsewhere in this letter, we see clear indications that U.S. production activity has moved positively, and we expect Tractor Supply’s exposure to energy-producing regions to benefit from the recovery for the foreseeable future. However, confusion over temporarily high U.S. oil inventories at the beginning of 2017, which led to shorter-term pull-back in oil prices, weighed on Tractor Supply’s stock in the first quarter, just as the bounce in oil prices in Q4 had provided a boost.

    Setting all this shorter-term noise aside, we saw much to like in the Company’s earnings report during the quarter. The Company demonstrated its impressive operational capabilities by wrestling a decent report out of a quarter that had started off weakly, hampered by unhelpful weather, harnessing a nimble supply chain to work with vendors to minimize exposure to struggling categories while quickly building exposure to categories that were working. More importantly, management highlighted the emerging recovery in energy-related regions within the quarter and mentioned that their prior worries about weakness in agriculturally-focused regions may have been due to weather, rather than due to broad problems in agriculture, as they had speculated in the prior quarter. You may recall that when we purchased Tractor Supply last quarter, we noted that the market already was baking in recessionary conditions in these two important industry exposures for the Company; in fact, we thought the market was nearly pricing in a full-blown domestic recession. Since our purchase, we have seen the beginnings of an expected recovery in energy, and the weakness in agriculture may have been illusory, after all. With fundamentals showing clear signs of improvement, and with the stock still trading at relatively depressed historical valuations, we took advantage of the opportunity to build our position during the first quarter.


  • David Rolfe Comments on Schlumberger

    Relative to the rest of the oil services industry, Schlumberger (NYSE:SLB) is less focused on North America (where they believe barriers to entry are lower) and are more focused on international E&P clients, particularly national oil companies (NOC). Schlumberger’s portfolio of vertically integrated assets increasingly allows the Company to become more competitively entrenched with their NOC clients. Increasingly, the Company is managing entire oilfields in exchange for performance incentives that result from increased production—byproducts of the Company’s decades of M&A and industry-leading R&D.

    Because skills and manpower are chronically scarce due to the boom-bust nature of the E&P industry, we think Schlumberger’s model of vertical integration will become more important to clients, helping drive value for them as well as shareholders.


  • David Rolfe Comments on Qualcomm

    The stock was our worst relative performer during the first quarter. While the stock was up nicely (+35%) in 2016 (after a dismal -30% in 2015), it suffered sharp profit-taking following Apple’s lawsuit filed in February. Apple’s lawsuit was filed just days after the Federal Trade Commission, in one of its final acts under the Obama administration, announced that it would sue Qualcomm (NASDAQ:QCOM) for its purportedly anti-competitive practices. The FTC alleged that, in the U.S., Qualcomm used its unfair (dominant) supplier of smartphone modems to demand higher patent payments. Apple was specifically called out for allegedly entering into an exclusivity deal with Qualcomm in order to avoid its onerous terms. It’s never fun when your children are fighting amongst themselves, and the same can be said when two of your portfolio children are fighting each other—and quite publicly at that. We have owned Apple since 2005 and have cheered the Company on during their long (and expensive) efforts to protect their IP. We have done the same during our +10-year ownership with Qualcomm’s legal battles as well. To hear each side state their respective cases, quite frankly, one can easily agree with both plaintiffs and defendants. However, we come down on the side that Qualcomm deserves to charge its current IP royalty rates given that they have been the mobile industry’s de facto R&D arm. No doubt Apple has been a prodigious investor in their own R&D, but most smartphone manufacturers are not much more than smartphone assemblers of discrete hardware and software. These lawsuits go right to the heart of Qualcomm’s royalty franchise. Not too surprising then that the stock fell sharply on news of the FTC and Apple lawsuits. In our view, the stock fell too sharply, from $66 to as low as $ 53. At valuations of $55 and below, the market embeds, in our view, a far too onerous settlement with Apple at a new royalty rate that is much too low, in our opinion. The Company’s NXP Semiconductor acquisitions remains on schedule. On the share price weakness, we added to our position in the stock in mid-to-late February.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners first-quarter 2017 shareholder letter.   

  • David Rolfe Comments on Priceline Group

    Priceline Group (NASDAQ:PCLN) was a top contributor during the first quarter as they continue to execute their strategy of connecting the supply of heavily fragmented, independent hospitality providers—primarily in international markets—with demand from the Company's rapidly expanding user base. While we recognize that the online travel agency (OTA) market in the U.S. has matured, there remains a sizable addressable international market in which Priceline continues to aggressively reinvest, primarily, in organic growth opportunities. From a supply perspective, Priceline Group's Booking.com site has amassed listings on over 500,000 "alternative" properties—all of which are available for online booking-in addition to well over 600,000 conventional hospitality properties. We believe the value proposition of renting a private residence (i.e., alternative property) is still substantially different from traditional hospitality services, and represents an incremental revenue opportunity for Booking.com. Last, while the multiple on the stock has expanded over the past few quarters, we continue to view Priceline’s valuation as one of the more attractive multiples in our universe, relative to the Company’s exceptional growth, and cash-rich balance sheet.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners first-quarter 2017 shareholder letter.   

  • David Rolfe Comments on Mead Johnson

    During the quarter, we liquidated our position in Mead Johnson (NYSE:MJN) after we determined the growth and competitive positioning of the business would be challenged for the next several years. In addition, the Company reached an agreement to be acquired by the European CPG firm, Reckitt Benckiser. A substantial portion of Mead Johnson’s growth in revenues and profits is derived from China, where a confluence of factors over the past few years have blunted the Company’s competitive advantage. First, the barriers to entry for Mead’s competition in China have fallen. While Mead has a well-established position in China’s traditional distribution channels, the Country’s emerging e-commerce channel has facilitated a booming “gray” market with Europe, where the Company has very little presence. Mead’s competitors in Europe have a much stronger value proposition than Chinese-based competitors. Second, China has become much less hospitable from a competitive standpoint. The rules and regulations that the NDRC (National Development and Reform Commission) have erected to prevent gray market expansion were, ostensibly, put in place to protect businesses that directly invested in the country’s local manufacturing and distribution—particularly to help raise quality and safety standards. While Mead has invested heavily in China, we think the returns from these investments will be much less attractive, now that the NDRC has failed to protect (and in some cases, actively undermined) those investments. Given our lack of conviction in the ability of the Company to post attractive, long-term, double-digit growth relative to a mediocre valuation, we decided it prudent to find a more attractive opportunity.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners first-quarter 2017 shareholder letter.   

  • David Rolfe Comments on Edwards Lifesciences

    We established a new position in Edwards Lifesciences (NYSE:EW) in the first quarter. Edwards is a pioneer in heart valve surgery, with nearly 90% of its revenues tied to heart valve replacement, by virtue of its best-in-class portfolio of intellectual property, backed by a relatively lengthy history of clinical data and successful outcomes. Heart disease is the world’s leading killer, and the incidence of heart disease grows with age, meaning that the aging of populations across the developed world is directly leading to a rise in the occurrence of heart problems. Over half of the Company’s business is tied to the rapidly-growing TAVR, or Transcatheter Aortic Valve Replacement, category. TAVR—as opposed to SAVR, which is Surgical Aortic Valve Replacement, which is generally a type of open-heart surgery—is a fairly recent technological advancement, with the first human procedure occurring in 2002; the first market approval in Europe in 2007; and US approval in 2011. We view TAVR, which replaces a heart valve using a small incision, usually in a patient’s leg, as clearly superior to traditional open-heart surgery, with similar clinical results at a comparable price, but without the need to crack open a patient’s chest. As the market for TAVR has developed, it was first approved for patients for whom traditional surgery was too risky to be a viable option, followed by patients for whom surgery was considered a high risk. 2016 saw a surge in procedures as TAVR was approved for patients for whom surgery is an intermediate risk, and clinical trials are underway to seek approval for low-risk patients, as well.

    EW is the clear market leader in the TAVR segment of the market, and we expect its TAVR solutions to continue to gain significant share industry-wide over time as the procedure spreads into the low-risk patient population, especially as regulatory issues constraining the growth of the procedure ease over time, and as the industry invests in patient and physician education to expand the overall valve-replacement population, well beyond prior expectations. In addition, there are a significant amount of underserved populations among patients not yet showing symptoms and patients who might not have considered treatment previously, when the only option was to have their chests cracked open. We believe, over time, that TAVR’s superior, much less invasive treatment option could lead to earlier screening of asymptomatic patients, as well as to patients proactively inquiring about therapy.


  • David Rolfe Comments on Core Labs

    Both of our oil service stocks corrected from recent January highs during the first quarter. Recall that from late January 2016 lows (remember fears of “ $20 oil?”), SLB rallied from $61 to $87 in mid-January 2017; a +43% gain. CLB (NYSE:CLB) rallied from $89 to $125 in early January 2017; a gain of +40%. (Note the stock raced to $135 in May last year, too.) The profit-taking was not too surprising after sharp stock price advances over the past year. The cause was two-fold. First, an unusually weak seasonally (winter maintenance) refinery pause. Second, the unusually large build-up of OPEC inventories before the commencement date of agreed-upon supply cuts. On the demand front, global oil-demand estimates continue to be revised upward, continuing a 7-year trend. Our thesis in these two stocks continues to play out as expected. Supply/demand continues to come into balance after the recent depression in the oil patch. Oil is back to over $50 again. Oil service activity is quite robust in North America. Oil service company pricing inflation has snapped back after recent deflation. International spending remains at depressed levels. Net, net, the oil service industry remains in the early innings of our expectation of a multi-year recovery.

    We think Core Labs is at the leading edge of a multi-year rebound in the E&P capex spending cycle. Core Labs’ revenues are derived from providing high-return, niche products and services for E&P companies that are looking to increase the output of already producing wells. The majority of the Company’s revenues are derived from their Reservoir Description (RD) business, which is focused on studying a fluid and core samples from a client’s oil or gas field, and then providing critical data sets on how to better produce from existing wells. The revenue stream of this business tend to be much less cyclical compared to most of the industry, as Core Labs’ RD services represent a small fraction of the client’s production budget, yet produces sizable returns. The Company’s more activity-driven business – Production Enhancement – grew 15% sequentially, and has begun to see the benefits of increased E&P spending, as clients work through a large backlog of uncompleted wells, particularly in unconventional North American basins. We expect this business to lead the return to growth in the short term, while Core Labs’ steadier, high-margin, Reservoir Description business should drive growth longer-term, particularly as international E&P spending begins rebounding later this year and into 2018.


  • David Rolfe Comments on Apple

    Apple (NASDAQ:AAPL) was a top relative and absolute contributor to performance during the quarter. The Company's iPhone franchise continues to dominate profitability share within the smartphone OEM market, after the next most profitable competitor (Samsung) incurred sizable losses from a product recall. Apple continues its long history of maintaining a focused hardware portfolio (relative to competitors), while aggressively innovating its in-house software and services capabilities which enables the narrow hardware portfolio to "act" much wider. For example, Apple's revenue from software and services grew almost 20%, to over $24 billion during fiscal 2016. We think Apple's software and services revenue stream has a very attractive profitability profile that should help offset the financial ebbs and flows inherent in the Company's well-established hardware product cycles. Apple exited the most recent quarter with a fortress-like balance sheet, a byproduct of their prodigious free cash flow generation of about $50 billion or more in each of the last three fiscal years. Rumors of the iPhone’s demise have once again been greatly exaggerated. With the pent -up demand for the upcoming iPhone 8, free cash flow may challenge the previous fiscal high of nearly $70 billion generated in fiscal 2015. While the stock has performed superbly over the past few quarters, we have pared back positions purely to limit our absolute weighting. That said, we continue to maintain a healthy overweight relative to the benchmark as we think the market continues to under-appreciate Apple's competitive positioning and long-term opportunities for profitable growth.

    From David Rolfe (Trades, Portfolio)'s Wedgewood Partners first-quarter 2017 shareholder letter.   

  • David Rolfe's Wedgewood Partners 1st Quarter 2017 Letter: Happy 8th Anniversary Mr. Market

    Review and Outlook


  • David Rolfe Invests in Tractor Supply, Fastenal

    Wedgewood Partners’ David Rolfe (Trades, Portfolio) gained two new holdings and divested another in the final quarter of 2016. He established positions in Tractor Supply Co. (NASDAQ:TSCO) and Fastenal Co. (NASDAQ:FAST). He sold out of Stericycle Inc. (NASDAQ:SRCL).

    With over 29 years of portfolio management experience, Rolfe serves as the chief investment officer at Wedgewood. The firm believes significant long-term wealth is created by investing as “owners” in a company. Wedgewood seeks highly profitable companies that offer a dominant product or service, consistently grow earnings, revenues and dividends and have strong management teams that prioritize shareholders. The current portfolio is composed of 36 stocks and is valued at around $4.1 million.


  • If Only Ross' Shares Were as Discounted as Its Merchandise

    Ross Stores Inc. (NASDAQ:ROST) is a growth story in retail despite no online presence. The company uses buying and merchandising expertise to sell name-brand and designer goods for up to 70% less than conventional retailers.

    It has more than 1,500 stores selling personal and home fashion through Ross Dress for Less and dd’s Discount. In coming years, it expects to grow the chains to at least 2,500 stores.


  • David Rolfe Comments on Visa

    Visa (NYSE:V)'s valuation came under pressure following the election early November as the market saw a rotation out of higher-multiple tech and financial securities and into more cyclical names. We used this opportunity to increase weightings across accounts as valuation levels became more attractive.

    Visa has consistently grown its revenue, EBITDA, and earnings double digits as it has played a key role in facilitating commerce’s multi-decade move away from paper-based transactions. The Company effectively represents the collective economic bargaining power of many of the United States’ and, more recently Europe’s, credit and debit card issuers – particularly banks. Visa has tremendous scale in card transaction processing, as they facilitated over $5.7 trillion in credit and debit volume across more than 120 billion transactions, during their fiscal 2016 - well above 2015 levels. Going forward, we fully expect to see this growth trajectory continue, with added help from the integration of Visa Europe which, as we've discussed previously, should help drive double digit accretion.


  • David Rolfe Comments on Tractor Supply Company

    Like Fastenal, Tractor Supply Company (NASDAQ:TSCO) is a company we have long admired. Management has executed a disciplined retailing strategy where they have carved out a niche, serving rural land owners with higher than average incomes. The Company has very deliberately positioned itself to be distinct from its competitors, namely Home Depot, Lowe’s, and, to a lesser extent, Wal-Mart, primarily by locating itself in more rural locations and focusing on merchandise that caters to the maintenance needs of a rural lifestyle, in a one-stop shop format (i.e. all-terrain vehicle replacement parts and feed for livestock as pets).

    We think the Company's profitability and value proposition will be insulated over time as they have made key tradeoffs to avoid competing with big box retailers, without necessarily impairing returns. As an example, we found evidence that the company’s real estate strategy, on average, has been to simultaneously locate Tractor Supply Company stores further from “big box” competitors, while getting into more densely populated markets. Meanwhile, the Company has managed to lower the build-out and rental costs of their new stores as they have continued to expand the store base aggressively, leading to improved returns - something that is particularly difficult in the brick-and-mortar retail world, where typically new store openings generate a lower level of sales and profitability than mature stores (naturally pressuring return on investment as the company grows). We assume the Company’s continuing store base expansion, as well as a conservative assumption on same store sales, should enable the Company to grow revenues in the mid-to-high single digits over the next several years, with earnings per share growth in the double digits, driven by a combination of flat to modest margin expansion as well as stock buybacks.


  • David Rolfe Comments on TreeHouse Foods

    TreeHouse Foods (NYSE:THS) was a relative detractor from performance during the quarter after a confluence of a few unfortunate, though we think transient, events. The Company unexpectedly missed its quarterly earnings estimates and reduced 2016 guidance, despite having had a few wins earlier in the year not long after closing the Private Brands acquisition in January. The Company reiterated, however, its long-term accretion guidance for Private Brands. From the time the merger was announced (late 2015), we had seen multiple areas where we think this longer-term guidance is still understated. Because of our belief in this cushion management built into their original guidance, we remain comfortable that they will be able to hit their long-term growth expectations, despite these shorter-term issues.

    On the same day the Company announced its disappointing Q3, the company also announced that their COO, Chris Sliva, was leaving the company. He turned up as the new CEO of a small food company a few days later. Fortunately - the only bit of good news on the day - Dennis Riordan, the retiring CFO, reversed his retirement on this news, announcing that he would stay on as President/COO for as long as he was needed.


  • David Rolfe Comments on Stericycle

    We liquidated Stericycle (NASDAQ:SRCL) from portfolios after we determined that the Company's competitive advantage in its core regulated medical waste (RMW) business was not as robust as we had seen during the past five years of our holding period. Prior to the erosion in the economics of their core RMW business, we remained optimistic about Stericycle’s business. Despite recent stumbles in their non-core hazardous waste business and slower than expected integration of newly acquired Shred-it, the RMW business continued to serve as the engine to double-digit growth in free cash flow. We previously believed that Stericycle's unrivaled scale had served to insulate its RMW profitability from competitive pressures, including customer push-back associated with consolidating end-markets, as many of Stericycle’s most profitable customers - particularly individual physician practices

    • have been consolidated by managed care organizations over the past several years. However, over the past few quarters, management began disclosing that the long-term contracts associated with these newly consolidated customers were coming up for renewal at significantly lower prices. It is not clear to us why the Company gave up this pricing, given that the market has few large-scale alternatives to Stericycle. Suffice it to say, these contracts are in place for several years (sometimes five years or more), and while the Company can spend this time recovering economics through more cross selling, this strategy is unproven and potentially dilutive. As such we lost conviction in Stericycle’s ability to defend its excess profitability in RMW, and subsequently liquidated our positions.

  • David Rolfe Comments on Charles Schwab

    Charles Schwab (NYSE:SCHW) was a top performer in the quarter as the company stands to benefit from the continued normalization of U.S. monetary policy. Despite a single federal funds rate hike during calendar year 2016, market expectations for further rate hikes have dramatically risen in the face of potential fiscal stimulus and higher inflation expectations.

    While we understand the market’s desire to discount the near-term “embedded option” of money market fee waiver relief at Schwab, we continue to invest in the Company for its industry-leading pretax profit margins and asset gathering capabilities, which we think are a byproduct of their consistent productivity investments made over the past few decades. We think this positions Schwab well in the increasingly commodified financial services industry, as the Company’s low-cost model and scale allows them to pass savings on to advisors and clients in the form of competitively lower fees, in exchange for mid-single digit platform asset growth. Combined with modest rate relief and continued productivity gains, we expect Schwab to continue posting earnings per share growth in the mid-teens.


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