When he reported Wedgewood Partners’ portfolio for the first quarter of 2020 last week, Chief Investment Officer David Rolfe (Trades, Portfolio) disclosed he drastically reduced several long-held positions and established three new holdings.
The guru’s St. Louis-based firm approaches potential investments with the mindset of a business owner, analyzing a handful of undervalued companies that have a dominant product or service, consistent earnings, revenue and dividend growth, are highly profitable and have strong management teams.
Taking these criteria into consideration, Rolfe made three new buys, sold out of two positions and trimmed or added to a number of other holdings during the quarter. The most significant trade was an 86.65% reduction in the Fastenal Co. (FAST, Financial) stake. Rolfe also slimmed down his holdings of Booking Holdings Inc. (BKNG, Financial) and Apple Inc. (AAPL, Financial). His two largest new buys for the first quarter were Keysight Technologies Inc. (KEYS, Financial) and Microsoft Corp. (MSFT, Financial).
Fastenal
With an impact of -4.06% on the equity portfolio, Rolfe slashed his stake in Fastenal by selling 1.08 million shares. He now holds 166,760 shares, which represent 0.99% of the equity portfolio. The stock traded for an average price of $35.30 per share during the quarter.
GuruFocus estimates the guru has gained 14.29% on the investment since establishing it in the fourth quarter of 2016.
The Winona, Minnesota-based distributor of industrial fasteners has a $22.23 billion market cap; its shares were trading around $38.99 on Tuesday with a price-earnings ratio of 28.13, a price-book ratio of 8.48 and a price-sales ratio of 4.17.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 2 out of 10 agrees with this assessment.
GuruFocus rated Fastenal’s financial strength 7 out of 10 and its profitability 9 out of 10. In his first-quarter letter to shareholders, Rolfe said he is “pleased with the fundamental performance” of the company and that he continues to like its “business model and competitive position in an industry that will benefit from the long-term renaissance in American manufacturing.” The problem is the stock, which “separately from the business fundamentals– has been a bit more of a wild, occasionally head-scratching ride during our holding period.”
Of the gurus invested in Fastenal, Mairs and Power (Trades, Portfolio) has the largest stake with 0.82% of outstanding shares. Other top guru shareholders are Pioneer Investments (Trades, Portfolio), Ron Baron (Trades, Portfolio), John Hussman (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio) and Jeff Auxier (Trades, Portfolio).
Booking Holdings
The guru sold 19,292 shares of Booking Holdings, impacting the equity portfolio by -4.02%. He now holds 13,547 shares, which account for 3.46% of the equity portfolio. Shares traded for an average price of $1,767.55 each during the quarter.
GuruFocus data shows the guru has gained 66.59% on the investment since establishing it in the fourth quarter of 2012.
The online travel agency, which is headquartered in Norwalk, Connecticut, has a market cap of $65.28 billion; its shares were trading around $1,590 on Tuesday with a price-earnings ratio of 20.25, a price-book ratio of 17.09 and a price-sales ratio of 4.68.
According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 6 out of 10, however, leans more toward undervaluation.
Booking’s financial strength was rated 6 out of 10 by GuruFocus, while its profitability scored a perfect 10 out of 10 rating. In his first-quarter letter, Rolfe wrote that the company has “borne the brunt of the Covid-19 crisis” as travel was disrupted and came to an “unprecedented standstill.” Nevertheless, he still believes the company is in a good position to withstand the current market environment.
With a 4.18% stake, Dodge & Cox is the company’s largest guru shareholder. Other top investors include Pioneer, First Eagle Investment (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio) , Bill Nygren (Trades, Portfolio) and Andreas Halvorsen (Trades, Portfolio).
Apple
Rolfe’s third-largest sale for the quarter was 115,704 shares of Apple, which impacted the equity portfolio by -3.44%. During the quarter, the stock traded for an average per-share price of $295.01. He now holds 209,420 shares, which represent 10.1% of the equity portfolio.
According to GuruFocus, the guru has gained an estimated 75.73% on the investment since the first quarter of 2012.
The Cupertino, California-based tech giant has a $1.38 trillion market cap; its shares were trading around $317.35 on Tuesday with a price-earnings ratio of 24.88, a price-book ratio of 17.51 and a price-sales ratio of 5.32.
Based on the Peter Lynch chart, the stock appears to be overvalued. The GuruFocus valuation rank of 1 out of 10 supports this assessment.
GuruFocus rated Apple’s financial strength 6 out of 10 on the back of comfortable interest coverage and a solid Altman Z-Score of 5.27. The company’s profitability scored a perfect 10 out of 10 rating, driven by margins and returns that outperform a majority of competitors, a high Piotroski F-Score of 8, which suggests operations are healthy, and consistent earnings and revenue growth.
Warren Buffett (Trades, Portfolio) is the company’s largest guru shareholder with a 5.66% stake. Other gurus with large positions in Apple include Ken Fisher (Trades, Portfolio), Pioneer, Spiros Segalas (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).
Keysight Technologies
The investor picked up 205,479 shares of Keysight Technologies, dedicating 3.26% of the equity portfolio to the position. During the quarter, the stock traded for an average price of $95.30 per share.
Headquartered in Santa Rosa, California, the company, which manufactures electronic test and measurement equipment and software, has a market cap of $18.12 billion; its shares were trading around $96.72 on Tuesday with a price-earnings ratio of 27.57, a price-book ratio of 5.91 and a price-sales ratio of 4.2.
The Peter Lynch chart suggests the stock is overvalued.
Keysight’s financial strength was rated 6 out of 10 by GuruFocus. Its profitability scored an 8 out of 10 rating. In his letter to investors, Rolfe noted the stock trades at “very attractive historical and absolute multiples” and that he thinks the company will be able to grow earnings and revenue at double-digit rates over the next several years “as it increasingly enables customers in rapidly growing end markets.”
Of the gurus invested in Keysight, PRIMECAP has the largest stake with 1.35% of outstanding shares. John Rogers (Trades, Portfolio), Simons’ firm, Pioneer, Robert Olstein (Trades, Portfolio) and Greenblatt also have positions in the stock.
Microsoft
Rolfe invested in 83,949 shares of Microsoft, allocating 2.51% of the equity portfolio to the holding. Shares traded for an average price of $164.71 each during the quarter.
The Redmond, Washington-based software company has a $1.41 trillion market cap; its shares were trading around $185.18 on Tuesday with a price-earnings ratio of 30.78, a price-book ratio of 12.38 and a price-sales ratio of 10.25.
According to the Peter Lynch chart and valuation rank of 1 out of 10, the stock is overvalued.
GuruFocus rated Microsoft’s financial strength 7 out of 10 and its profitability a perfect 10. In his letter for the quarter, Rolfe noted the company has a “formidable position in productivity software” and “durable long-term growth prospects.” The guru was prompted to buy the stock after it sold off following “a cautious update to its guidance for its Windows OEM business driven by supply chain disruptions in China related to the Covid-19 outbreak.”
With 0.34% of outstanding shares, PRIMECAP is the company’s largest guru shareholder. Other top gurus who have positions in Microsoft include Fisher, Dodge & Cox, Pioneer, Segalas, Chase Coleman (Trades, Portfolio), Steve Mandel (Trades, Portfolio), Hotchkis & Wiley, Halvorsen and Frank Sands (Trades, Portfolio).
Additional trades
The guru also established a small 18,750-share position in luxury fashion company Tapestry Inc. (TPR, Financial) during the quarter and sold out of his holdings in aerospace giant Boeing Co. (BA, Financial) and transportation company C.H. Robinson Worldwide Inc. (CHRW, Financial), impacting the equity portfolio by 0.04% and 0.03%.
In addition, Rolfe expanded his holdings of Blackstone Group Inc. (BX, Financial) by 51.92% and BP PLC (BP, Financial) by 74.7%, along with smaller increases in the Annaly Capital Management Inc. (NLY, Financial), U.S. Bancorp (USB, Financial) and The Torono-Dominion Bank (TD) positions.
Additional reductions to the portfolio were made in Edwards Lifesciences Corp. (EW), Visa Inc. (V), Alphabet Inc. (GOOGL), Ross Stores Inc. (ROST) and Facebook Inc. (FB), among several other stocks.
Portfolio composition and performance
Wedgewood’s $527 million equity portfolio, which is composed of 41 stocks, is largely invested in the technology, communication services and financial services sectors.
The firm posted a return of 31.96% for 2019, slightly outperforming the S&P 500 Index’s 31.49% return.
Disclosure: No positions.
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