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Margaret Moran
Margaret Moran
Articles (237) 

Chris Davis’ Firm Buys Intel, Sells Microsoft

Update on the guru’s biggest trades for the fourth quarter

Davis Selected Advisors recently disclosed its portfolio updates for the fourth quarter of 2019.

Founded in 1969, Davis Selected Advisors is an employee-owned investment management firm based in Tuscon, Arizona. The current chairman, Chris Davis (Trades, Portfolio), joined the firm in 1989 and serves as the portfolio manager for the Large Cap Value Portfolios and as a research team member for other portfolios. The firm’s investment strategy aims to purchase durable, well-managed businesses at value prices.

As of the quarter’s end, the equity portfolio consisted of holdings in 134 stocks valued at $20.91 billion. The top holdings were Wells Fargo & Co. (NYSE:WFC) with 6.81% of the equity portfolio, Capital One Financial Corp. (NYSE:COF) with 6.51% and New Oriental Education & Technology Group Inc. (NYSE:EDU) with 5.94%.


In terms of sector weighting, the firm has 40.32% of the equity portfolio invested in financial services, followed by communication services at 13.53% and consumer cyclical at 11.55%.


During the fourth quarter, the firm’s biggest sells were in Adient PLC (NYSE:ADNT) and Microsoft Corp. (NASDAQ:MSFT), while its biggest buys were in Intel Corp. (NASDAQ:INTC) and 58.com Inc. (NYSE:WUBA).


Davis Selected Advisors sold 4,391,131 shares of Adient, reducing the stake by 49.05%. The trade had a -0.51% impact on the equity portfolio. Adient shares traded at an average price of $22.17 apiece during the quarter.


Adient is a manufacturer of automobile seating based in Plymouth, Michigan. With an average of 23 million seats sold per year in recent years, Adient is a global leader in its industry.

On Feb. 19, Adient shares traded around $27.83 for a market cap of $2.61 billion. GuruFocus has assigned the company a financial strength score of 4 out of 10 and a profitability score of 4 out of 10.

Adient has a cash-debt ratio of 0.27 and interest coverage of 1.26%, ranking below 89.35% of industry competitors. The Altman Z-score of 1.57 indicates that the company may be in the financial danger zone.


Over the past several years, the company has seen both revenue and net income declines. The operating margin of 0.84% indicates that it is struggling to turn its dollars into profits.


According to Fitch Ratings, auto sales are expected to decline by 4% globally, 2% in the U.S. and 11% in China during 2020, continuing the automobile sales decline that’s been occurring since around mid-2018. As a maker of automobile seats, Adient’s profits won’t be immediately affected by these declines, but they will likely be hit if carmakers begin to slow production.


The firm also sold 506,692 shares, or 29.04%, of its Microsoft holding, impacting the equity portfolio by -0.35%. Shares of Microsoft traded at an average price of $147.30 during the quarter.


Microsoft is a major technology company headquartered in Redmond, Washington. It develops, manufactures, licenses, sells and supports PCs, computer software and various consumer electronics.

On Feb. 19, shares of Microsoft traded around $187.21 for a market cap of $1.41 trillion and a price-earnings ratio of 32.63. The company has a GuruFocus financial strength rating of 6 out of 10 and a profitability rating of 10 out of 10.

Microsoft’s cash-debt ratio of 1.75 and interest coverage of 18.75% are around the industry average, while the Altman Z-score of 6.64 indicates secure financial stability.


The company has a three-year revenue growth rate of 12.6% and a three-year Ebitda growth rate of 21.4%, which has resulted in a stock price that may be overvalued, according to the Peter Lynch chart.


Microsoft continues to see revenue growth in all major categories except Xbox, which was down 11% year over year. It’s undeniably a great business; the only downside is the high valuation, which increases volatility and may make the stock unusually susceptible in the case of an economic downturn.


Davis’ biggest buy was for 1,107,396 shares of Intel, which boosted the holding by 15.14%. The trade had a 0.32% impact on the equity portfolio. During the quarter, shares of Intel traded at an average price of $56.13.


Intel is a semiconductor manufacturing company based in Santa Clara, California. The company is the world’s largest producer of PC microprocessors, and its mobile processors have been a key driver of growth in recent years.

On Feb. 19, shares of Intel traded around $67.11 for a market cap of $286.43 billion and a price-earnings ratio of 14.18. According the Peter Lynch chart, the stock may be trading below its intrinsic value.


GuruFocus has assigned Intel a financial strength rating of 7 out of 10 and a profitability rating of 9 out of 10. The company has a three-year revenue growth rate of 9.7% and a three-year Ebitda growth rate of 21.6%. Net income has also seen strong growth.


Last year, Intel sold its smartphone modem unit to Apple (NASDAQ:AAPL) for $1 billion, as well as some other non-core assets. More recently, it has been looking into selling off its connectivity unit to MaxLinear (NYSE:MXL). Slimming down could either improve margins or be an attempt to bolster the company for headwinds, which it might experience if the clock speeds for its newest processers don’t stay ahead of competitors.


The firm boosted its holding in 58.com by 549,282 shares, or 2410.19%, which had a 0.17% impact on the equity portfolio. Shares of the company traded at an average price of $56.60 during the quarter.


58.com is a Chinese holding company based in Bejing. Its holdings consist mainly of online classifieds and listing platforms, which enable merchants to connect and share information.

On Feb. 19, shares of 58.com traded around $59.10 for a market cap of $8.89 billion and a price-earnings ratio of 10.08. According to the Peter Lynch chart, the stock may be undervalued.


58.com has a GuruFocus financial strength rating of 7 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 35.12 is beating 66.73% of competitors. Over the past several years, both revenue and net income have grown at an impressive pace.


This company doesn’t get as much media or international attention as more prominent Chinese companies like Alibaba (BABA), leading to its low valuation. In essence, 58.com is like a Chinese version of Craigslist, but with more advertising services, a larger addressable market and a wider variety of customers. Similar to Craigslist, this is a company that is more recession-proof than other tech and interactive media peers; many of the customers lost during a recession would typically be replaced by others who are looking for cheaper was to get their names out.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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