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James Li
James Li
Articles (1282)  | Author's Website |

Top 5 Buys of Jeremy Grantham’s GMO in the 1st Quarter

Firm’s top buy is in Buffett’s favorite drink, Coca-Cola

Grantham, Mayo and van Otterloo, the firm co-founded by Jeremy Grantham (Trades, Portfolio), disclosed this week that its top five buys for the first quarter included an increased bet on Coca-Cola Co. (NYSE:KO) and new positions in Starbucks Corp. (NASDAQ:SBUX) and Quest Diagnostics Inc. (NYSE:DGX).

According to its website, the Boston-based asset management firm believes that investing using a valuation-based approach “best serves clients over the long term.” GMO’s investment teams seek to achieve their goals either through innovative quantitative tools, rigorous fundamental research or a mix of the two approaches.

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As of quarter-end, the firm’s $11.97 billion equity portfolio contains 746 stocks, of which 190 represent new positions. The top three sectors in terms of portfolio weight are technology, health care and financial services, with weights of 24.72%, 19.52% and 13.40%.

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The firm had a turnover ratio of 20% for the quarter. Its top five buys also include position boosts in iShares Core MSCI Emerging Markets (IEMG) and U.S. Bancorp. (NYSE:USB).

Top buy: Coca-Cola

GMO added 2,784,716 shares of Coca-Cola, increasing the stake 76.57% and the equity portfolio 1.03%. Shares averaged $54.17 during the first quarter.

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The Atlanta-based beverage giant warned in April that global volume sales tumbled 25% during the month as shelter-in-place orders to curtail the coronavirus outbreak resulted in a material volume decline in the company’s away-from-home channels, which represent nearly half of the company’s revenue. Although Coke has a GuruFocus profitability rank of 7, driven by expanding operating margins and a return on equity that outperforms over 98% of global competitors, the website warns that Coke’s revenue has declined approximately 3.40% per year over the past three years, a rate that underperforms 74.47% of global non-alcoholic beverage companies.

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Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) has not released its March-quarter portfolio as the deadline is 45 days after the quarter ends. As of the December 2019 filing, Berkshire owns 400 million shares of Coke, giving the position 9.15% equity portfolio weight.

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Starbucks

The firm purchased 1,271,005 shares of Starbucks, giving the position 0.70% weight in the equity portfolio. Shares averaged $81.31 during the first quarter.

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GuruFocus ranks the Seattle-based coffee giant’s profitability 9 out of 10 on several positive investing signs, which include consistent revenue growth and operating margins that are outperforming over 83.87% of global competitors despite contracting over the past five years.

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Quest Diagnostics

GMO purchased 1,373,100 shares of Quest Diagnostics, giving the holding 0.92% weight in the equity portfolio. Shares averaged $103.78 during the first quarter.

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The Secaucus, New Jersey-based company provides a wide range of diagnostic testing, information and services. GuruFocus ranks Quest Diagnostics’ profitability 8 out of 10 on several positive investing signs, which include consistent revenue growth, expanding operating margins and a return on equity that outperforms 80.28% of global competitors.

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U.S. Bancorp

The firm added 2,807,919 shares of U.S. Bancorp, increasing the stake 51.16% and the equity portfolio 0.81%. Shares averaged $48.59 during the first quarter.

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The Minneapolis-based bank offers a wide range of financial services primarily in the Western and Midwestern U.S. According to GuruFocus, the regional bank’s debt ratios underperform over 71% of global competitors, suggesting low financial strength.

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iShares Core MSCI Emerging Markets

The firm added 2,657,026 shares of iShares Core MSCI Emerging Markets exchange-traded fund, increasing the position 176.53% and the equity portfolio 0.90%. Shares averaged $49.11.

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According to the iShares website, the ETF seeks to track the investment results of an index containing large-cap, mid-cap and small-cap equities from emerging markets.

Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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