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Margaret Moran
Margaret Moran
Articles (451) 

Biggest 4th-Quarter Trades of the Parnassus Endeavor Fund

Socially responsible fund invests in tech, sells Alaska Air

January 12, 2021 | About:

The Parnassus Endeavor Fund (Trades, Portfolio) recently released its portfolio updates for the fourth quarter of 2020, which ended on Dec. 31.

The fund is part of Parnassus Investments, which follows a socially responsible value-based strategy, investing in a wide range of deeply discounted, out-of-favor stocks that have long-term competitive advantages and relevancy, quality management and positive scores on ESG (environmental, social and corporate governance) criteria. It is managed by Senior Research Analyst Billy Hwan, CPA, CFA. Jerome Dodson (Trades, Portfolio), the founder of Parnassus Investments, stepped down from the board of trustees effective Dec. 31 and will no longer be managing the funds, though he will remain chairman of the board.

Based on its investing criteria, the fund's top buys for the quarter were Intel Corp. (NASDAQ:INTC) and Cisco Systems Inc. (NASDAQ:CSCO), while its top sells were Micron Technology Inc. (NASDAQ:MU) and Alaska Air Group Inc. (NYSE:ALK).

Intel

The fund added 1,000,000 to its investment in Intel, increasing the stake by 50% for a total holding of 3,000,000 shares. The trade had a 1.56% impact on the equity portfolio. During the quarter, shares traded for an average price of $48.73.

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Intel is a semiconductor company based in Santa Clara, California. It is involved in the design, manufacturing and sale of computer products and technologies, and it also provides computer, networking, data storage and communications platforms.

On Jan. 12, shares of Intel traded around $53.24 for a market cap of $218.18 billion and a price-earnings ratio of 10.45. The GuruFocus Value chart rates the stock as modestly undervalued.

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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 0.5 is lower than 73% of competitors, but the Altman Z-Score of 3.55 indicates the company is not in danger of bankruptcy. The return on invested capital has consistently surpassed the weighted average cost of capital in recent quarters, indicating that the company is creating value.

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Cisco Systems

The fund also upped its stake in Cisco Systems by 500,000 shares, or 20%, for a total investment of 3,000,000 shares. The trade had a 0.70% impact on the equity portfolio. Shares traded for an average price of $41.21 during the quarter.

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Cisco Systems is a multinational technology company and worldwide leader in IT, networking and cybersecurity solutions. Based in San Jose, California, the company develops, manufactures and sells networking hardware, software, telecommunications equipment and other tech products.

On Jan. 12, shares of Cisco traded around $45.79 for a market cap of $193.49 billion and a price-earnings ratio of 18.6. The GuruFocus Value chart rates the stock as fairly valued.

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The company has a financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. Both the cash-debt ratio of 2.06 and the interest coverage ratio of 26.03 indicate a healthy balance sheet. The three-year revenue growth rate is 6.8%, while the three-year Ebitda growth rate is 8%.

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Micron Technology

The fund cut its investment in Micron Technology by 1,400,000 shares, or 21.88%, for a remaining position of 5,000,000 shares. The trade had a -2.43% impact on the equity portfolio. During the quarter, shares traded for an average price of $60.70.

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Headquartered in Boise, Idaho, Micron is a semiconductor company that produces a variety of computer memory and data storage products. It markets its consumer products under the brand names Crucial and Ballistix.

On Jan. 12, shares of Micron traded around $79.46 for a market cap of $88.89 billion and a price-earnings ratio of 29.98. The GuruFocus Value chart rates the stock as significantly overvalued.

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The company has a financial strength rating of 7 out of 10 and a profitability rating of 8 out of 10. The interest coverage ratio of 17.5 and Altman Z-Score of 5.59 show the company has a healthy financial situation. The three-year revenue growth rate is 2.5%, but Ebitda has declined with a three-year growth rate of -2.3%.

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Alaska Air Group

The fund sold out of its 900,000-share position in Alaska Air Group, impacting the equity portfolio by -1.22%. Shares traded for an average price of $45.33 during the quarter.

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Alaska Air Group is a holding company for Alaska Airlines (a mainline carrier) and Horizon Air (a regional carrier). It is based in SeaTac, Washington.

On Jan. 12, shares of Alaska Air traded around $51.69 for a market cap of $6.39 billion. The GuruFocus Value chart rates the stock as significantly overvalued.

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The company has a financial strength rating of 3 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.69 is higher than 69% of industry peers, but the Altman Z-Score of 0.89 indicates that the company is at risk of bankruptcy. ROIC has been lower than WACC in recent quarters, indicating that the company is losing money on its operations.

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Portfolio overview

As of the quarter's end, the Parnassus Endeavor Fund (Trades, Portfolio) held common stock positions in 28 companies valued at $3.19 billion. The top holdings were Micron with 11.8% of the equity portfolio, Applied Materials Inc. (AMAT) with 9.48% and Charles Schwab Corp. (SCHW) with 6.66%.

In terms of sector weighting, the fund was most invested in technology, financial services and industrials.

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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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