Jerome Dodson (Trades, Portfolio) has released his second quarter portfolio for 2020. During the quarter, the guru sold out of 16 holdings. Major sell outs included Microsoft (MSFT, Financial), Mondelez International (MDLZ, Financial), NVIDIA (NVDA, Financial), FedEx (FDX, Financial) and T-Mobile US (TMUS, Financial).
The Parnassus Fund invests across the capitalization spectrum with high conviction in approximately 40 holdings. The Fund's contrarian approach seeks to invest in companies that are currently out of favor with the majority of investors. It strives to outperform the S&P 500 index with a high active share. The Fund avoids companies engaged in the extraction, exploration, production, manufacturing, or refining of fossil fuels.
Portfolio overview
The portfolio contains 44 stocks as of the end of the quarter, with 26 new holdings. It is valued at $919.00 million and has seen a turnover rate of 52%. Major new holdings include Synopsys (SNPS, Financial), CoStar Group (CSGP, Financial), Waste Connections (WCN, Financial), Verisk Analytics (VRSK, Financial) and The Trade Desk Inc. (TTD, Financial).
Top holdings as of the quarter's end include Square (SQ, Financial)(3.87%), Autodesk (ADSK)(3.69%), Synopsys (3.38%), Cerner Corp. (CERN)(3.24%) and Cadence Design Systems (CDNS)(3.22%).
By weight, the top three sectors include technology (36.90%), healthcare (18.44%) and industrials (15.89%).
Microsoft
The portfolio saw the end of its Microsoft holding with the sale of 336,267 shares. The shares, owned since the second quarter of 2019, sold for an average price of $180.95 and represented a -7.04% impact on the portfolio. GuruFocus estimates the total gain on the holding at 34.54%.
Microsoft develops and licenses consumer and enterprise software. It is known for its Windows operating systems and Office productivity suite. The company is organized into three overarching segments: productivity and business processes, intelligence cloud and personal computing. Through acquisitions, Microsoft owns Xamarin, LinkedIn and GitHub.
On July 17, Microsoft was trading at $202.64 per share with a market cap of $1.54 trillion. According to the Peter Lynch Chart the company has been trading well above its intrinsic value since 2015.
GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 1 out of 10. The company’s cash-to-debt ratio of 1.86 places them lower than 52.62% of the industry, although the company has been decreasing debt in recent years. Extraordinary operating and net margin percentages allow the company to dominate the software industry.
Mondelez International
Mondelez International, held since 2015, was cut from the portfolio with the sale of 706,205 shares for an overall impact of -4.70%. The shares sold for an average price of $51.34, and GuruFocus estimates the total gain at 15.36%.
Mondelez has operated as an independent organization following its split from the former Kraft Foods North American grocery business in October 2012. The firm is a leading player in the global snack arena with a presence in the biscuit, chocolate, gum and candy, beverage and cheese and grocery aisles. Mondelez's portfolio includes well-known brands like Oreo, Chips Ahoy, Halls, Trident and Cadbury, among others. The firm derives just over one third of revenue from developing markets, a similar level from Europe and the remainder from North America.
July 17 saw the company trading at $54.11 per share with a market cap of $77.07 billion. The Peter Lynch Chart shows the company trading close to its intrinsic value since 2018.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 2 out of 10. The company maintains a strong operating margin percentage of 15.57% that places it higher than 86.20% of their competitors. Their cash-to-debt ratio is lower than the industry but they have maintained cash flows over the last several years.
NVIDIA
NVIDIA was also cut from the portfolio after the holding was increased in the second quarter of 2019, for an impact on the portfolio of -4.62%. The 131,873 shares were sold at an average price of $322.32. Total estimated gain sits at a staggering 80.84% during the lifetime of the holding.
Nvidia is a leading designer of graphics processing units that enhance the experience on computing platforms. The firm's chips are used in a variety of end markets, including high-end PCs for gaming, data centers and automotive infotainment systems. In recent years, the firm has broadened its focus from traditional PC graphics applications such as gaming to more complex and favorable opportunities, including artificial intelligence and autonomous driving, which leverage the high-performance capabilities of the firm's graphics processing units.
As of July 17, shares were trading at $406.80 with a market cap of $251.06 billion. The company is significantly overvalued according to the Peter Lynch Chart.
GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 1 out of 10. The company’s cash-to-debt ratio places them higher than 56.49% of the industry. An Altman Z-Score of 17.61 places the company well into the safe zone from bankruptcy thanks to increasing cash levels.
FedEx
The guru sold all 274,457 shares of FedEx. Overall the portfolio saw an impact of -4.42% as the shares sold at an average price of $125.55. The holding saw a total estimated gain of -12.42% during its lifetime.
FedEx pioneered overnight delivery in 1973 and remains the world's largest express package provider. In its fiscal 2019, FedEx derived 54% of revenue from its express division, 29% from ground and 11% from freight; its asset-based less-than-truckload shipping segment. The remainder comes from other services, including FedEx Office (which provides document production/shipping) and FedEx Logistics (which provides global forwarding). FedEx acquired Dutch parcel delivery firm TNT Express in 2016. TNT was previously the fourth- largest global parcel-delivery provider.
On July 17, FedEx shares were trading at $165.15 with a market cap of $43.36 billion. The end of 2019 saw the company trading severely above its intrinsic value before returning closer to fair value.
GuruFocus gives the company a financial strength score of 4 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 5 out of 10. GuruFocus shows two severe warning signs of increasing long-term debt and assets growing faster than revenue. The return on invested capital is outweighed by the weighted average cost of capital indicating degrading value.
T-Mobile
The sell out of T-Mobile represented the fifth largest impact on the portfolio of -3.82%. The 342,834 shares were sold at an average price of $95.53. GuruFocus estimates the total gain at 53.09%.
Deutsche Telekom merged its T-Mobile USA unit with prepaid specialist MetroPCS in 2013, creating T-Mobile US. The firm serves 40 million postpaid and 21 million prepaid phone customers, equal to about 20% of the retail wireless market. T-Mobile is the third- largest carrier in the U.S., trailing AT&T and Verizon, though it will roughly match AT&T's size with the acquisition of Sprint.
July 17 saw shares trading at $105.10 with a market cap of $130.09 billion. The Peter Lynch Chart suggests the company is trading close to its intrinsic value and is relatively fair valued.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 1 out of 10. The company’s Altman Z-Score of 1.87 places them close to the distress zone for near future bankruptcy. While the cash-to-debt ratio is poor, solid operating margin and net margin percentages outdo the majority of the industry.
Disclaimer: Author owns no stocks mentioned.
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