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Sydnee Gatewood
Sydnee Gatewood
Articles (2490) 

Jeremy Grantham's Top Holdings as of the 1st Quarter

The guru sees a bubble forming amid the coronavirus rebound

In a CNBC Closing Bell interview with Wilfred Frost on Wednesday, legendary value investor Jeremy Grantham (Trades, Portfolio) said he is becoming increasingly sure that the markets rebound amid the Covid-19 pandemic is forming a bubble that will end painfully for many investors.

My confidence is rising quite rapidly that this is the fourth Real McCoys bubble of my investment career, Grantham said. The great bubbles can go on for a long time and inflict a lot of pain.

The previous three bubbles the leader of Boston-based GMO referred to, which he is noted for accurately predicting, were Japan in 1989, the tech bubble in 2000 and the housing crisis of 2008.

As a result, he advised that investors should consider reducing their U.S. exposure to zero.

The U.S. is simply now playing with fire, he said. You might make a lot of money in a really short time, but recognize we are skating on very thin ice.

That being said, GuruFocus top holdings data shows Granthams five largest positions as of the quarter ended March 31 were Microsoft Corp. (NASDAQ:MSFT), Apple Inc. (NASDAQ:AAPL), UnitedHealth Group Inc. (NYSE:UNH), Oracle Corp. (NYSE:ORCL) and Alibaba Group Holding Ltd. (NYSE:BABA).

Microsoft

The gurus largest stake is 3.4 million shares of Microsoft, which represents 4.53% of the equity portfolio. GuruFocus estimates he has gained 85.8% on the investment since the third quarter of 2009.

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The Redmond, Washington-based software company has a $1.48 trillion market cap; its shares were trading around $195.17 on Thursday with a price-earnings ratio of 32.6, a price-book ratio of 13.11 and a price-sales ratio of 10.86.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 1 out of 10 aligns with this assessment since the share price and price ratios are near 10-year highs.

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GuruFocus rated Microsofts financial strength 7 out of 10 on the back of a good cash-debt ratio of 1.86 and adequate interest coverage. The company has a robust Altman Z-Score of 6.92, suggesting it is in good shape even though assets are building up at a faster rate than revenue is growing. The return on invested capital is also significantly above the weighted average cost of capital, indicating good profitability.

The companys profitability and growth scored a 9 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 8, which implies business conditions are healthy. Having recorded consistent earnings and revenue growth, Microsoft also has a four-star predictability rank. According to GuruFocus, companies with this rank typically see their stocks return an average of 9.8% annually over a 10-year period.

Of the many gurus invested in Microsoft, PRIMECAP Management (Trades, Portfolio) has the largest stake with 0.34% outstanding shares. Other top guru shareholders include Ken Fisher (Trades, Portfolio), Dodge & Cox, Pioneer Investments (Trades, Portfolio), Spiros Segalas (Trades, Portfolio), Chase Coleman (Trades, Portfolio), Steve Mandel (Trades, Portfolio), Hotchkis & Wiley, Andreas Halvorsen (Trades, Portfolio) and Frank Sands (Trades, Portfolio).

Apple

Granthams second-largest holding is 1.7 million shares of Apple, which accounts for 3.59% of the equity portfolio. GuruFocus says he has gained an estimated 149.97% on the investment since the second quarter of 2009.

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Headquartered in Cupertino, California, the tech giant, which is known for the iPhone and Mac computer, has a market cap of $1.52 trillion; its shares were trading around $352.18 on Thursday with a price-earnings ratio of 27.56, a price-book ratio of 19.37 and a price-sales ratio of 5.89.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 1 out of 10 also supports overvaluation since its share price and price ratios are near 10-year highs.

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Apples financial strength was rated 6 out of 10 by GuruFocus. Although the company has issued approximately $9.8 billion in new long-term debt over the past three years, it is at a manageable level due to comfortable interest coverage and a high Altman Z-Score of 5.66. The ROIC also surpasses the WACC by a wide margin, indicating good profitability.

The companys profitability fared extremely well with a 10 out of 10 rating. Even though the operating margin is in decline, it still outperforms a majority of industry peers. Apple is also supported by strong returns, a high Piotroski F-Score of 8 and consistent earnings and revenue growth. It also has a 4.5-star predictability rank. GuruFocus says companies with this rank typically post an average annual return of 10.6%.

With a 5.66% stake, Warren Buffett (Trades, Portfolio) is the companys largest guru shareholder. Fisher, Pioneer, Segalas, Jim Simons (Trades, Portfolio) Renaissance Technologies, PRIMECAP, Bill Gates (Trades, Portfolio) foundation trust, David Carlson (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and several other gurus also have positions in the stock.

UnitedHealth Group

With a weight of 3.04% in Granthams equity portfolio, UnitedHealth Group comes in third at 1.5 million shares. According to GuruFocus, he has gained 94.51% on the investment since the third quarter of 2009.

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The managed care company based in Minnetonka, Minnesota has a $275.2 billion market cap; its shares were trading around $289 on Thursday with a price-earnings ratio of 20.32, a price-book ratio of 4.89 and a price-sales ratio of 1.15.

Based on the Peter Lynch chart and the GuruFocus valuation rank of 1 out of 10, the stock appears to be overvalued.

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GuruFocus rated UnitedHealths financial strength 6 out of 10. Despite issuing $16.5 billion in new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 3.26 also indicates it is in good standing even though assets are building up at a faster rate than revenue is growing.

The companys profitability scored a 9 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of competitors, a high Piotroski F-Score of 9 and consistent earnings and revenue growth. UnitedHealth also has a perfect five-star predictability rank, which, according to GuruFocus, means it returns an average of 12.1% annually.

The Vanguard Health Care Fund (Trades, Portfolio) is UnitedHealths largest guru shareholder with a 0.96% stake. Other top guru investors are Dodge & Cox, Mandel, Barrow, Hanley, Mewhinney & Strauss, Ruane Cunniff (Trades, Portfolio), Hotchkis & Wiley, Pioneer, Mairs and Power (Trades, Portfolio), Larry Robbins (Trades, Portfolio) and Glenn Greenberg (Trades, Portfolio).

Oracle

The investors fourth-largest position is 6.9 million shares of Oracle, which represent 2.81% of the equity portfolio. Grantham has gained an estimated 62.71% on the investment since fourth-quarter 2009.

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The Redwood City, California-based software company has a market cap of $167.42 billion; its shares were trading around $52.95 on Thursday with a price-earnings ratio of 17.16, a price-book ratio of 13.2 and a price-sales ratio of 4.48.

The Peter Lynch chart suggests the stock is overvalued. The GuruFocus valuation rank of 5 out of 10, however, leans more toward it being fairy valued.

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Oracles financial strength was rated 4 out of 10 by GuruFocus. While the cash-debt ratio of 0.6 is underperforming both its industry and compared to its history, it still has sufficient interest coverage.

The companys profitability scored an 8 out of 10 rating, driven by strong margins and returns that outperform a majority of industry peers. Oracle also has a high Piotroski F-Score of 7, steady earnings and revenue growth and a 4.5-star predictability rank.

Of the gurus invested in Oracle, First Eagle Investment (Trades, Portfolio) has the largest stake with 0.96% of outstanding shares. Other top guru shareholders include Fisher, Barrow, Hanley, Mewhinney & Strauss, Hothckis & Wiley, PRIMECAP, Yacktman Asset Management (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio), Pioneer, Chris Davis (Trades, Portfolio) and NWQ Managers (Trades, Portfolio).

Alibaba

Rounding out Granthams top five is 1.7 million shares of Alibaba, which makes up 2.73% of the equity portfolio. GuruFocus data shows the guru has gained 6.09% on the investment since the first quarter of 2016.

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The Chinese e-commerce company has a $603.42 billion market cap; its shares were trading around $223.3 on Thursday with a price-earnings ratio of 28.16, a price-book ratio of 5.68 and a price-sales ratio of 8.24.

According to the Peter Lynch chart, the stock is overvalued.

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GuruFocus rated Alibabas financial strength 7 out of 10, driven by a comfortable level of interest coverage and a high Altman Z-Score of 7.18.

The companys profitability and growth scored a 9 out of 10 rating. Although the operating margin is in decline, it still outperforms a majority of competitors. Alibaba is also supported by strong returns, a high Piotroski F-Score of 7 and consistent earnings and revenue growth. It also has a predictability rank of 2.5 stars. GuruFocus says companies with this rank typically return 7.3% annually on average.

With a 0.51% stake, PRIMECAP is the companys largest guru shareholder. Fisher, Sands, Mandel, Pioneer, Segalas, Coleman, Davis, Dodge & Cox, Philippe Laffont (Trades, Portfolio), David Tepper (Trades, Portfolio), the Matthews Pacific Tiger Fund (Trades, Portfolio), Ketterer and Ron Baron (Trades, Portfolio), among others, also have positions in the stock.

Additional top holdings and portfolio composition

Other large positions in Granthams portfolio as of the end of the first quarter were Johnson & Johnson (NYSE:JNJ), Medtronic PLC (NYSE:MDT), U.S. Bancorp (NYSE:USB), Coca-Cola Co. (NYSE:KO) and Accenture PLC (NYSE:ACN).

A majority of the gurus $11.97 billion equity portfolio, which consisted of 746 stocks as of March 31, was invested in the technology and health care sectors, followed by smaller holdings in the financial services and consumer cyclical spaces.

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Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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