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Margaret Moran
Margaret Moran
Articles (380) 

The Most Popular Guru Buys of the 3rd Quarter

These stocks had the most net buys from gurus during the 3rd quarter of 2020

The third quarter was undeniably another bull run for stock markets with the major U.S. indexes reaching unprecedented highs. The S&P 500 surpassed 3,500 for the first time in history, the Nasdaq rocketed above 11,000 and the Dow Jones Industrial Average came within a few hundred points of recovering from its pre-Covid highs.

As a result, the U.S. stock market is more overvalued than ever. The Buffett Indicator, which is the ratio of total market cap to gross domestic product, stands at 182.3% as of Dec. 4, indicating that the U.S. stock market is significantly overvalued. This metric is named after Warren Buffett (Trades, Portfolio), who famously called it "probably the best single measure of where valuations stand at any given moment."

However, despite the general overvaluation, gurus have still found plenty of names that they expect to profit on. According to GuruFocus' Hot Picks, a feature which allows investors to screen for the stocks that had the most guru buys or sells over a specific time frame, the five most popular stocks among gurus during the third quarter of 2020 (as determined by net buys) were Accenture PLC (NYSE:ACN), Snowflake Inc. (NYSE:SNOW), Varian Medical Systems Inc. (NYSE:VAR), Shopify Inc. (NYSE:SHOP) and D.R. Horton Inc. (NYSE:DHI).

Accenture

Accenture is a multinational IT and professional services company based in Ireland. It operates a network of businesses that provide corporate clients with consulting, technology, outsourcing and alliance solutions.

During the quarter, 12 gurus bought shares of Accenture while one guru sold shares of the company, resulting in 11 net buys. As of the quarter's end, 16 gurus had a stake in Accenture.

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Pioneer Investments is the biggest guru shareholder of the company with 0.51% of shares outstanding, followed by Jeremy Grantham (Trades, Portfolio) with 0.27% and the MS Global Franchise Fund (Trades, Portfolio) with 0.09%.

During the quarter, shares traded for an average price of $228.97. As of Dec. 4, the stock trades around $252.34 with a 52-week price range of $137.15 to $253.93. The GuruFocus Value chart rates the stock as modestly overvalued.

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Throughout its history, Accenture is a company that has relied on acquisitions and expansion in order to keep its profits increasing. This strategy has gained it a lot of moving parts to deal with. In terms of where its profits come from, technology services brought in 55% of the company's revenue in fiscal 2019, with 32% coming from strategy and consulting services and 14% from business optimization.

The company's strategy for future growth revolves around gradually shifting away from slow-growth areas and replacing such operations with services for fast-growing end markets like digital, cloud and security. So far, Accenture has been able to execute this strategy without taking on significant debt; the cash-debt ratio of 2.44 and interest coverage ratio of 196.96 show that its balance sheet is strong.

Snowflake

Snowflake's core product is a cloud-based data warehouse that seamlessly operates across the three major public clouds. Founded in 2012, it seems that the founders of the company anticipated the shift to the cloud, as they began to build a cloud computing data warehouse right near the beginning of the cloud's rise in popularity.

During the quarter, 11 gurus bought shares of Snowflake, which had its initial public offering on Sept. 16. Thus, no gurus have yet reported selling shares of the stock. As of the quarter's end, 11 gurus had a stake in Snowflake.

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The largest guru shareholder of the company is Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) with 2.21% of shares outstanding, followed by Philippe Laffont (Trades, Portfolio) with 1.46% and Frank Sands (Trades, Portfolio) with 0.86%.

During the quarter, shares traded for an average price of $238.10. As of Dec. 4, the stock trades around $384.75, marking a 57% increase from its IPO price. The company has a cash-debt ratio of 23.07 due to ample fundraising, but is not yet profitable.

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Despite being a tech IPO, Snowflake has two qualities that value investors have found attractive: a good management team and a moat. The company was founded by two former Oracle (ORCL) employees, Benoit Dageville and Thierry Cruanes, as well as Marcin Zukowski, one of the co-founders of Dutch data start-up Vectorwise. All three came from industry-leading data companies, which is an encouraging starting point in terms of the company's future prospects. Snowflake's current CEO, Frank Slootman, has extensive executive experience as the former CEO of ServiceNow (NYSE:NOW), an industry leader in cloud-based, back-end software vendors for large enterprise customers.

Additionally, taking advantage of the trends of big data processing and the public cloud, Snowflake can take all of the data from a company (regardless of the source) and make sense out of it, essentially providing unique value-added services that competitors have yet to replicate. This could become a potential source of moat for the company if it can become the undisputed leader in its niche before direct competitors can get a foothold.

Varian Medical Systems

Varian is a medical devices and software company based in Palo Alto, California. It focuses on radiation oncology treatments, providing medical devices such as linear accelerators as well as software for use in treating cancer with radiotherapy, radiosurgery, proton therapy and brachytherapy.

During the quarter, 11 gurus bought shares of Varian while two gurus sold shares of the company, resulting in nine net buys. As of the quarter's end, 12 gurus had a stake in Varian.

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The biggest guru shareholder of the company is First Eagle Investment (Trades, Portfolio) with 1.47% of shares outstanding, followed by Al Gore (Trades, Portfolio) with 1.44% and Pioneer Investments (Trades, Portfolio) with 0.29%.

During the quarter, shares traded for an average price of $156.93. As of Dec. 4, the stock trades around $174.56 with a 52-week range of $89.62 to $176.19. The GuruFocus Value Chart rates the stock as modestly overvalued.

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Varian has been one of the leaders of the New York Stock Exchange in terms of stock price gains this year, having climbed 22% year to date and more than 25% over the past 12 months. A good chunk of those gains came after the company announced in the beginning of August that it has entered into a definitive agreement to be acquired by German medtech company Siemens Healthineers (SMMNY) in an all-cash transaction worth $16.4 billion, or $177.50 per share.

The deal was approved by shareholders on Oct. 15 and is expected to close in the first half of 2021, barring any potential regulatory issues. The merger will create a powerful force in emerging new cancer care treatments and technologies.

Shopify

Shopify is a Canadian company that owns a proprietary e-commerce platform of the same name. Its platform enables businesses to easily create online stores or add online stores and retail point-of-sale systems to their existing operations.

During the quarter, 10 gurus bought shares of Shopify while two gurus sold shares of the company, resulting in eight net buys. As of the quarter's end, 12 gurus have a stake in the company.

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Steven Mandel is the biggest guru shareholder of the company with 1.41% of shares outstanding, followed by Frank Sands (Trades, Portfolio) with 0.73% and Spiros Segalas (Trades, Portfolio) with 0.70%.

During the quarter, shares traded for an average price of $994.38. As of Dec. 4, the stock trades around $1,065.91 with a 52-week range of $293.46 to $1,146.91. The GuruFocus Value chart rates the stock as significantly overvalued.

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Shopify has undeniably been a beneficiary of the accelerated demand for digital commerce brought about by the Covid-19 pandemic, though even before this it was growing quickly as its products help business quickly and easily start and grow the reach of their offerings. One of the main reasons for entrepreneurs to choose Shopify over other platforms like Amazon (NASDAQ:AMZN) is that it allows them to retain more independence.

Due to its niche focus and platform provider model, Shopify's growth will most likely mirror the growth of e-commerce very closely, and this expectation is clearly reflected in analysts' estimates – for example, Morningstar analysts expect the company's revenue to grow to $5.1 billion in 2022 compared to $2.8 billion in 2020, while earnings per share is expected to be $5.08 in 2022 compared to $3.72 this year.

D.R. Horton

Headquartered in Arlington, Texas, D.R. Horton is the largest homebuilder in the U.S. by number of closings. It builds new homes and sells both new and old homes through four brands: Express, Emerald, Freedom and D.R. Horton, which are all marketed toward different age and wealth demographics.

During the quarter, 11 gurus bought shares of D.R. Horton while four gurus sold shares of the company, resulting in seven net buys. As of the quarter's end, 17 gurus had a stake in D.R. Horton.

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The biggest guru shareholder of the company is George Soros (Trades, Portfolio) with 0.84%, followed by Pioneer Investments (Trades, Portfolio) with 0.28% and Ken Heebner (Trades, Portfolio) with 0.24%.

During the quarter, shares traded for an average price of $68.05. As of Dec. 4, the stock trades around $71.55 with a 52-week range of $25.51 to $81.21. The GuruFocus Value chart rates the stock as modestly overvalued.

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Despite the U.S. economy entering a recession earlier this year, the housing market is one of the areas that recovered the fastest. Indeed, this industry only stumbled slightly in its bull run before returning to growth as the housing market gained two additional points of appeal: record-low mortgage rates and renter flight from big cities.

As one of the biggest homebuilders in the U.S., D.R. Horton has been in a prime position to benefit from the heightened demand for its products. Additionally, the market offered many opportunities for investors to pick up the stock at low prices this year, as many were expecting the economic crisis to be immediately followed by a housing crash just like in 2008.

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. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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