Glenn Greenberg (Trades, Portfolio), founder and manager of Brave Warrior Advisors, disclosed he established three new positions and exited another when he released his portfolio for fourth-quarter 2019 earlier this month.
Prioritizing high returns on invested capital, the guru’s New York-based firm maintains a concentrated portfolio of companies that have little to no competition. Greenberg also believes the more companies one owns, the less that is known about each one, which can lead to mistakes.
With these criteria in mind, Greenberg opened positions in Progressive Corp. (PGR, Financial), UnitedHealth Group Inc. (UNH, Financial) and Dollar Tree Inc. (DLTR, Financial) during the quarter. He also divested of his Citigroup Inc. (C, Financial) stake.
Progressive
The guru invested in 1.7 million shares of Progressive, allocating 6.6% of the equity portfolio to the stake. The stock traded for an average price of $72.04 per share during the quarter.
The Mayfield, Ohio-based insurance company has a $44.08 billion market cap; its shares were trading around $74 on Friday with a price-earnings ratio of 11.21, a price-book ratio of 3.22 and a price-sales ratio of 1.22.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. Due to the share price and price-sales ratio being close to 10-year highs, however, the GuruFocus valuation rank of 4 out of 10 leans toward overvaluation.
Weighed down by debt, Progressive’s financial strength was rated 3 out of 10 by GuruFocus.
The company’s profitability fared much better, scoring a 7 out of 10 rating on the back of margins and returns that outperform a majority of competitors. It also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
Of the gurus invested in Progressive, Pioneer Investments (Trades, Portfolio) has the largest stake with 1.30% of outstanding shares. Other top guru shareholders include Jim Simons (Trades, Portfolio)’ Pioneer Investments (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), the Parnassus Endeavor Fund (Trades, Portfolio), John Rogers (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio).
UnitedHealth Group
Greenberg picked up 159,089 shares of UnitedHealth, dedicating 2.47% of the equity portfolio to the position. Shares traded for an average price of $263.11 each during the quarter.
The managed health care company, which is headquartered in Minnetonka, Minnesota, has a market cap of $240.86 billion; its shares were trading around $251.20 on Friday with a price-earnings ratio of 17.71, a price-book ratio of 4.19 and a price-sales ratio of 1.
According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 2 out of 10 also supports this assessment.
GuruFocus rated UnitedHealth’s financial strength 6 out of 10. Although the company has issued approximately $5.5 billion in new long-term debt over the past three years, it is still at a manageable level due to having adequate interest coverage. Further, the Altman Z-Score of 3.44 indicates the company is in good standing financially.
The company’s profitability scored a 9 out of 10 rating, driven by an expanding operating margin, strong returns that outperform over half of its industry peers and a moderate Piotroski F-Score of 6, which indicates business conditions are stable. Supported by consistent earnings and revenue growth, UnitedHealth has a perfect five-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 12.1% per year.
With 1.01% of outstanding shares, the Vanguard Health Care Fund (Trades, Portfolio) is the company’s largest guru shareholder. Dodge & Cox, Steve Mandel (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Jeremy Grantham (Trades, Portfolio), Pioneer, Andreas Halvorsen (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Larry Robbins (Trades, Portfolio) and many other gurus also have positions in the stock.
Dollar Tree
The investor purchased 7,799 shares of Dollar Tree, giving the holding 0.04% space in the equity portfolio. During the quarter, the stock traded for an average per-share price of $104.48.
The operator of a chain of discount retail stores based in Chesapeake, Virginia has a $19.79 billion market cap; its shares were trading around $81.48 on Friday with a forward price-earnings ratio of 15.65, a price-book ratio of 3.22 and a price-sales ratio of 0.85.
Based on the median price-sales chart, the stock appears to be trading below its historical average and is, therefore, undervalued. The GuruFocus valuation rank of 6 out of 10, along with a share price and price ratios near multiyear lows, also suggests undervaluation.
Dollar Tree’s financial strength was rated 4 out of 10 by GuruFocus. Despite having sufficient interest coverage, the Altman Z-Score of 2.2 indicates the company is under some financial pressure as its assets are building up at a faster rate than its revenue is growing.
The company’s profitability scored a 9 out of 10 rating despite having declining margins, negative returns that underperform a majority of competitors and a low Piotroski F-Score of 3, which implies operating conditions are in poor shape. Dollar Tree’s 4.5-star business predictability rank is on watch as a result of a slowdown in revenue per share growth over the past 12 months. GuruFocus says companies with this rank typically see their stocks gain an average of 10.6% per year.
Chuck Akre (Trades, Portfolio) has the largest position in Dollar Tree with a 2.15% stake. Other top guru shareholders are Steven Cohen (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Pioneer, Wallace Weitz (Trades, Portfolio), Gayner, Robert Olstein (Trades, Portfolio) and Ken Fisher (Trades, Portfolio).
Citigroup
Greenberg sold his 1.37 million remaining shares of Citigroup, impacting the equity portfolio by -5.06%. The stock traded for an average price of $74.07 per share during the quarter.
GuruFocus estimates the guru has gained 4.4% on the investment since establishing it in the third quarter of 2018.
Headquartered in New York, the investment bank and financial services company has a market cap of $131.13 billion; its shares were trading around $61.98 on Friday with a price-earnings ratio of 7.68, a price-book ratio of 0.74 and a price-sales ratio of 1.88.
The chart shows the stock is trading below both the Peter Lynch value and the median price-book ratio, which suggests it is undervalued. With both the price-earnings and price-book ratios near one-year lows, the GuruFocus valuation rank also indicates undervaluation.
GuruFocus rated Citigroup’s financial strength 3 out of 10. As a result of issuing approximately $52 billion in new long-term debt over the past three years, the company has poor interest coverage and the cash-debt ratio of 0.66 is lower than over 60% of companies it its industry.
The bank’s profitability did not fare much better, scoring a 4 out of 10 rating even though its net margins and returns on equity and assets outperform at least half of its industry peers. Citigroup has a one-star business predictability rank.
Jeff Ubben (Trades, Portfolio)’s ValueAct is Citigroup’s largest guru shareholder with a 1.28% stake. Other top guru investors are Hotchkis & Wiley, Diamond Hill Capitol, Bill Nygren (Trades, Portfolio), Richard Pzena (Trades, Portfolio), PRIMECAP, First Pacific Advisors (Trades, Portfolio), Steven Romick (Trades, Portfolio), Pioneer, Sarah Ketterer (Trades, Portfolio), Charles Brandes (Trades, Portfolio), NWQ Managers (Trades, Portfolio) and Kahn Brothers (Trades, Portfolio).
Additional trades and portfolio composition
During the quarter, Greenberg also boosted his stake in Antero Midstream Corp. (AM, Financial) and trimmed his holdings of several other stocks, including Alphabet Inc. (GOOGL, Financial), Charles Schwab Corp. (SCHW, Financial), JPMorgan Chase & Co. (JPM, Financial), Primerica Inc. (PRI, Financial) and Raymond James Financial Inc. (RJF, Financial).
More than half of the guru’s $1.89 billion equity portfolio, which is composed of 19 stocks, is invested in the financial services sector, followed by smaller positions in the communication services (16.67%), health care (12.49%) and consumer cyclical (10.21%) spaces.
Disclosure: No positions.
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