Jeremy Grantham (Trades, Portfolio)'s GMO LLC recently released its portfolio updates for the third quarter of 2020, which ended on Sept. 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 1990s and credit markets in 2006.
During the quarter, GMO's biggest buys were in Lam Research Corp. (LRCX, Financial) and Coca-Cola Co. (KO, Financial), while its top sells were Apple Inc. (AAPL, Financial) and Honeywell International Inc. (HON, Financial).
Lam Research
The firm increased its position in Lam Research by 663,447 shares, or 3897.81%, for a total holding of 680,468 shares. The trade had a 1.57% impact on the equity portfolio. During the quarter, shares traded for an average price of $344.01.
Lam Research is a semiconductor company based in Fremont, California. It primarily engages in designing, manufacturing, marketing and servicing semiconductor processing equipment that is used in the fabrication of advanced integrated circuits.
On Nov. 18, shares of Lam Research traded around $435.22 for a market cap of $62.41 billion. The GuruFocus Value chart rates the stock as significantly overvalued.
The company has a financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 1.14 and Altman Z-Score of 7.06 both indicate a strong liquidity position. The three-year revenue growth rate is 15.6%, while the three-year Ebitda growth rate is 18.5%.
Coca-Cola
The firm also upped its stake in Coca-Cola by 2,487,910 shares, or 37.44%, for a total investment of 9,132,270 shares. The trade had a 0.87% impact on the equity portfolio. Shares traded for an average price of $48.09 during the quarter.
The iconic multinational beverage company is based in Atlanta and is home to brands such as Coca-Cola, Dasani, Fanta, Minute Maid, Powerade and more. However, the company recently announced that it will be discontinuing approximately 200 (or half) of its brands, including Zico and Tab.
On Nov. 18, shares of Coca-Cola traded around $53.03 for a market cap of $227.72 billion. The GuruFocus Value chart rates the stock as modestly overvalued.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. Although the cash-debt ratio of 0.4 is lower than 60% of competitors, the Altman Z-Score of 3.53 shows the company is not likely to have issues getting the funds it needs. The operating margin has been in an uptrend throughout the company's history to 28.26% as of the most recent fiscal year, though the net margin has been more unpredictable.
Apple
The firm reduced its holding in Apple by 1,964,330 shares, or 29.08%, for a remaining position of 4,791,070 shares. The trade had a -1.33% impact on the equity portfolio. During the quarter, shares traded for an average price of $109.02 on a split-adjusted basis.
Based in Cupertino, California, Apple is one of the Big Four technology companies, with iconic products such as the iPhone, AirPods, MacBook and Apple Watch. More recently, as its products begin to reach higher market saturation, it is seeking to increase its Software-as-a-Service offerings.
On Nov. 18, shares of Apple traded around $119.12 for a market cap of $2.02 trillion. The GuruFocus Value chart rates the stock as significantly overvalued.
The company has a financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 0.81 is below the industry median of 1.29, but the Altman Z-Score of 6.48 shows the company has a strong financial situation. The operating margin and net margin grew tremendously before slowing down over the past decade, shrinking slightly to 24.15% and 20.19%, respectively, for the most recent full fiscal year.
Honeywell International
The firm also cut its Honeywell International investment by 1,033,307 shares, or 91.91%, for a remaining holding of 90,929 shares. The trade had a 1.11% impact on the equity portfolio. Shares traded for an average price of $157.60 during the quarter.
Honeywell International is an industrial conglomerate based in Charlotte, North Carolina. It is mainly known for manufacturing parts for the aerospace, control technologies, electronics and power generation industries, as well as specialty chemicals, fibers and plastics. It also has retail, sporting goods, safety, supply chain and construction arms.
On Nov. 18, shares of Honewell traded around $203.36 for a market cap of $142.32 billion. The GuruFocus Value chart rates the stock as significantly overvalued.
The company has a financial strength rating of 6 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.68 is below the industry median of 1.0, but the Altman Z-Score of 3.85 indicates the company is not likely to face liquidity issues. The return on invested capital has typically exceeded the weighted average cost of capital in recent years, indicating overall value creation for shareholders.
Portfolio overview
As of the quarter's end, the firm held common shares in 757 stocks valued at a total of $14.04 billion. The top holdings were Microsoft Corp. (MSFT, Financial) with 4.46% of the equity portfolio, Apple with 3.95% and UnitedHealth Group Inc. (UNH, Financial) with 3.48%.
In terms of sector weighting, the firm was most invested in technology, health care and financial services.
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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