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Margaret Moran
Margaret Moran
Articles (388) 

Biggest 2nd-Quarter Trades of Jeremy Grantham's Firm

GMO turns over portfolio during the second quarter

Jeremy Grantham (Trades, Portfolio)'s GMO LLC recently released its portfolio updates for the second quarter of 2020, which ended on June 30.

Grantham is a co-founder and a member of the asset allocation team of Grantham, Mayo, Van Otterloo (GMO) & Co. LLC. The Boston-based asset management firm utilizes various long-term, value-based investment strategies that focus on risk management and diversification. Grantham is known for his success in consistently identifying and avoiding stock market bubbles, including the Japanese market bubble in the late 1980s, tech and internet stocks in the late '90s and credit markets in 2006.

During the second quarter, GMO had a high turnover rate of 20%, selling the common stocks of 533 companies and buying shares in 315 companies. The biggest buys were for Royal Dutch Shell PLC (NYSE:RDS.B) and Alibaba Group Holding Ltd. (NYSE:BABA), while the biggest sells were for Cognizant Technology Solutions Corp. (NASDAQ:CTSH) and the ISHARES INC (IEMG) ETF.

Royal Dutch Shell

The firm added 3,029,100 shares to its investment in Royal Dutch Shell, increasing the stake by 3,132.47% to a total of 3,125,800 shares. The trade had a 0.69% impact on the equity portfolio. During the quarter, shares traded for an average price of $32.71.

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Commonly known as Shell, this British-Dutch multinational oil and gas giant is headquartered in the Netherlands and incorporated in the U.K. It is involved in the exploration, production, refining, transport, distribution, marketing, power generation and trading aspects of the industry.

On Aug. 14, shares of the company traded around $29.56 for a market cap of $118.62. Net income has normally been positive over the past couple of years, but dropped into the negatives for the first half of 2020.

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GuruFocus gives Shell a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 0.27 is lower than the industry median of 0.39, while the Altman Z-Score of 1.56 indicates the company will likely need to raise additional liquidity to avoid bankruptcy. Excluding recent quarters, the company's net margin and operating margin have typically been higher than the industry medians.

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Alibaba Group Holding

The firm also increased its stake in Alibaba Group Holding by 422,700 shares, or 25.15%, for a total holding of 2,103,273 shares. The trade had a 0.68% impact on the equity portfolio. Shares traded for an average price of $207.72 during the quarter.

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Alibaba is a Chinese multinational conglomerate with holdings in e-commerce, retail, internet and technology assets, among many others. By volume, Alibaba is the largest e-commerce company in the world, with millions of merchants and hundreds of millions of users.

On Aug. 14, shares of Alibaba traded around $252.86 for a market cap of $683.60 billion and a price-earnings ratio of 31.67. According to the Peter Lynch chart, the stock is trading above its intrinsic value but below its median historical valuation.

GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 2.47 and Altman Z-Score of 7.99 indicate high financial stability. The return on invested capital recently surpassed the weighted average cost of capital, indicating a turn to profitability for investors.

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Cognizant Technology Solutions

The firm exited its 3,222,311-share position in Cognizant Technology Solutions, impacting the equity portfolio by -1.25%. During the quarter, shares traded for an average price of $53.59.

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Cognizant is a New Jersey-based IT company that provides digital, technology, consulting and IT services to businesses. Specifically, it focuses on helping clients transform their businesses' operating and technology models for the digital era.

On Aug. 14, shares of Cognizant traded around $67.11 for a market cap of $36.38 billion and a price-earnings ratio of 22.68. According to the Peter Lynch chart, the stock is trading above its intrinsic value, but below its median historical valuation.

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GuruFocus gives the company a financial strength rating of 8 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 1.32 is lower than the industry median of 2.2, but the Altman Z-Score of 5.5 indicates the company is not in danger of bankruptcy. The ROIC has been in a steady downtrend, but it is still higher than the WACC, indicating the company is generating profits from its investments.

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ISHARES INC ETF

The firm also sold 1,943,220 shares of ISHARES INC, reducing the position by 46.69% for a remaining holding of 2,218,987 shares. The trade had a -0.66% impact on the equity portfolio. Shares traded for an average price of $44.24 during the quarter.

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The ISHARES INC (IEMG) ETF is part of BlackRock Inc.'s (BLK) iShares family of exchange-traded funds. It tracks a broad range of companies in emerging markets, with 2,510 holdings as of the end of the second quarter.

On Aug. 14, the ETF traded around $52.88 per share for a market cap of $54.12 billion, a price-earnings ratio of 12.57 and a dividend yield of 2.31%. The price is up 12% over the past 12 months.

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Portfolio overview

As of the quarter's end, the firm held common shares in 746 stocks valued at a total of $11.97 billion. The top holdings were Microsoft Corp. (MSFT) with 5.12% of the equity portfolio, Apple Inc. (AAPL) with 4.58% and Alibaba with 3.37%.

In terms of sector weighting, the firm was most invested in technology, health care and financial services.

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Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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