Wedgewood Partners Chief Investment Officer David Rolfe (Trades, Portfolio) disclosed his portfolio for the fourth quarter of 2020 earlier this week.
The guru's St. Louis-based firm approaches potential investments with the mindset of a business owner, analyzing a handful of undervalued companies that have a dominant product or service, consistent earnings, revenue and dividend growth, are highly profitable and have strong management teams.
In his shareholder letter for the three-month period ended Dec. 31, Rolfe noted the firm was "unusually inactive" in its buying and selling. While the market previously boosted "lockdown stocks" in the first three quarters of the year, it soon switched gears to support "vaccine stocks" in November. The guru also commented on the Federal Reserve's response to the Covid-19 pandemic, calling the $3.2 trillion expansion in its balance sheet over three months not "just a safety net, but a trampoline for nearly every asset class."
"Assuming the risk of COVID fades materially early this year, global economies, riding a tidal wave of central bank liquidity, are set to continue recovering throughout 2021," he wrote. "The stock market has aggressively priced in such an event – even to the extent that current expectations of a robust 2021 are still too conservative."
Taking these developments into consideration, Rolfe established three new positions, added to one holding and trimmed a slew of other existing investments during the quarter. The most significant trades included a new holding in Progressive Corp. (PGR, Financial) and reductions of the Tractor Supply Co. (TSCO, Financial), Facebook Inc. (FB, Financial), Apple Inc. (AAPL, Financial) and Alphabet Inc. (GOOGL, Financial) positions.
Progressive
The guru invested in 134,104 shares of Progressive (PGR, Financial), allocating 1.97% of the equity portfolio to the holding. The stock traded for an average price of $94.62 per share during the quarter.
The Mayfield, Ohio-based insurance company has a $51.6 billion market cap; its shares were trading around $88.44 on Friday with a price-earnings ratio of 9.13, a price-book ratio of 3.04 and a price-sales ratio of 1.21.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. The valuation rank of 5 out of 10, however, indicates it is fairly valued since the price-earnings and price-book ratios are nearing multiyear lows.
In his quarterly letter, Rolfe noted that even though growth investors have widely avoided financial stocks over the past decade, there are "a handful of superior" companies in this space that "can generate attractive growth at superior returns." He went on to say that Progessive "fits the bill" as it is "capable of driving double-digit top-line growth, thanks to a decade-plus of property and casualty underwriting innovation, combined with an aggressive, but prudent, marketing strategy."
Despite having a comfortable level of interest coverage, GuruFocus rated Progressive's financial strength 4 out of 10. The return on invested capital also surpasses the weighted average cost of capital, indicating there is good value creation.
The company's profitability scored a 7 out of 10 rating on the back of strong margins and returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6, which suggests operations are stable. Consistent earnings and revenue growth also contributed to a predictability rank of three out of five stars. According to GuruFocus, companies with this rank return an average of 8.2% annually over a 10-year period.
Of the gurus invested in Progressive, Pioneer Investments (Trades, Portfolio) has the largest stake with 0.67% of outstanding shares. PRIMECAP Management (Trades, Portfolio), Glenn Greenberg (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), the Parnassus Endeavor Fund (Trades, Portfolio), Tom Gayner (Trades, Portfolio), John Rogers (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies and several other gurus also have positions in the stock.
Tractor Supply
Impacting the equity portfolio by -1.81%, the investor curbed his Tractor Supply (TSCO, Financial) position by 23.69%, selling 79,865 shares. Shares traded for an average price of $139.90 each during the quarter.
Rolfe now holds 257,331 shares total, accounting for 5.38% of the equity portfolio and is his eighth-largest holding. GuruFocus estimates he has gained 31.02% on the investment since establishing it in the fourth quarter of 2016.
The retailer of farm and ranch supplies, which is headquartered in Brentwood, Tennessee, has a market cap of $19.9 billion; its shares were trading around $170.79 on Friday with a price-earnings ratio of 26.76, a price-book ratio of 10.46 and a price-sales ratio of 1.89.
According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 4 out of 10 aligns with this assessment, especially since the share price and price ratios are approaching multiyear highs.
Despite selling off some of its shares in order to buy Progressive, Rolfe said in his letter he still thinks Tractor Supply's long-term benefits continue to be underappreciated by the market.
"The Company should be able to sustain its new customer base due to investments made both pre-pandemic and post-pandemic which should drive double-digit earnings growth rates at very attractive returns on capital," he wrote. "As such, we continue to maintain Tractor Supply at a full weighting in portfolios."
Tractor Supply's financial strength was rated 6 out of 10 by GuruFocus. Although the company has issued approximately $561.4 million in new long-term debt over the past three years, it is at a manageable level due to having sufficient interest coverage. The Altman Z-Score of 5.41 also indicates the company is in good standing even tough assets are growing at a faster rate than revenue is growing.
The company's profitability scored a 9 out of 10 rating despite a declining operating margin. Tractor Supply is supported by strong returns that outperform a majority of industry peers, a moderate Piotroski F-Score of 6 and steady earnings and revenue growth, which resulted in a five-star predictability rank. GuruFocus says companies with this rank return, on average, 12.1% annually.
With 0.69% of outstanding shares, Pioneer is the company's largest guru shareholder. Simons' firm, Mario Gabelli (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and John Hussman (Trades, Portfolio) also own the stock.
The investor trimmed the Facebook (FB, Financial) position by 6.83%, selling 12,436 shares. The trade had an impact of -0.51% on the equity portfolio. During the quarter, the stock traded for an average per-share price of $274.26.
Rolfe now holds 169,700shares total, representing 8.84% of the equity portfolio and is his fourth-largest holding. According to GuruFocus, he has gained 14.81% on the investment since establishing it in the first quarter of 2018.
The Menlo Park, California-based social media company has a $746.92 billion market cap; its shares were trading around $262.40 on Friday with a price-earnings ratio of 25.97, a price-book ratio of 5.94 and a price-sales ratio of 8.8.
Based on the Peter Lynch chart, the stock appears to be overvalued.
GuruFocus rated Facebook's financial strength 7 out of 10. In addition to comfortable interest coverage, the company is supported by a high Altman Z-score of 17.2. The ROIC is also significantly higher than the WACC, indicating good value creation.
The company's profitability scored a 10 out of 10 rating, supported by an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotrsoki F-Score of 6. Consistent earnings and revenue growth also contributed to a five-star predictability rank.
Frank Sands (Trades, Portfolio) has the largest stake in Facebook with 0.37% of outstanding shares. Chase Coleman (Trades, Portfolio), Spiros Segalas (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Pioneer, Steve Mandel (Trades, Portfolio), Dodge & Cox, Chris Davis (Trades, Portfolio) and First Eagle Investment (Trades, Portfolio), among others, also have significant holdings in the stock.
Apple
With an impact of -0.50% on the equity portfolio, Rolfe reduced the Apple (AAPL, Financial) holding by 5.73%, selling 27,197 shares. During the quarter, the stock traded for an average price of $120.34 per share.
He now holds 447,836 shares total, making up 8.84% of the equity portfolio and remaining the guru's largest holding. GuruFocus estimates Rolfe has gained 81.19% on the investment so far.
The tech company, which is headquartered in Cupertino, California, has a market cap of $2.16 trillion; its shares were trading around $129.05 on Friday with a price-earnings ratio of 34.9, a price-book ratio of 33.3 and a price-sales ratio of 7.57.
The Peter Lynch chart suggests the stock is overvalued. The GuruFocus valuation rank of 1 out of 10 supports this assessment since the share price and price ratios are all approaching 10-year highs.
Apple's financial strength was rated 6 out of 10 by GuruFocus, driven by comfortable interest coverage and a robust Altman Z-Score of 6.22. The company's ROIC is also significantly above its WACC, suggesting it is creating value as it grows.
The company's profitability fared even better with an 8 out of 10 rating. While the operating margin is in decline, it is still outperforming versus industry peers. Apple also has strong returns, a high Piotroski F-Score of 7, which suggests business conditions are healthy, and consistent earnings and revenue growth. It also has a 2.5-star predictability rank. GuruFocus says companies with this rank return an average of 7.3% annually.
Warren Buffett (Trades, Portfolio) is Apple's largest guru shareholder with a 5.58% stake. Other top guru investors include Fisher, Pioneer, Segalas, Grantham, PRIMECAP, David Carlson (Trades, Portfolio), Gayner and Bill Gates (Trades, Portfolio)' foundation trust.
Alphabet
The guru sold 2,055 Class C shares of Alphabet (GOOGL, Financial), impacting the equity portfolio by -0.48% and the holding by -7.39%. Shares traded for an average price of $1,685.58 each during the quarter.
He now holds 25,737 shares total, giving it 6.71% space in the equity portfolio. It is also Rolfe's fifth-largest holding. He has gained around 81.24% on the investment.
The tech conglomerate based in Mountain View, California, which owns Google, YouTube and a number of other businesses, has a market cap of $1.42 trillion; its shares were trading around $2,098.39 on Friday with a price-earnings ratio of 35.72, a price-book ratio of 6.88 and a price-sales ratio of 8.42.
According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 3 out of 10 supports this assessment since the share price and price ratios are approaching 10-year highs.
In his quarterly letter, Rolfe said the Google business "showed some modest expense leverage after several quarters of heavy reinvestment, driving double-digit earnings growth" for Alphabet.
"We would not be surprised if that leverage is short-lived," he wrote. "However, Alphabet continues to meaningfully under-earn relative to its potential, and we welcome any effort that brings forward, or at least highlights, the Company's pent-up earnings power. On the latter score, Alphabet announced it will be providing more detailed operating segment profit data in the coming year."
Alphabet's financial strength was rated 8 out of 10 by GuruFocus on the back of adequate interest coverage and a robust Altman Z-Score of 11.02. Although assets are building up at a faster rate than revenue is growing, indicating it may be becoming less efficient, the ROIC eclipses the WACC.
The company's profitability scored a 9 out of 10 rating, driven by strong margins and returns that outperform a majority of competitors. Alphabet also has a moderate Piotroski F-Score of 4 and consistent earnings and revenue growth contributed to a predictability rank of five out of five stars.
With 0.25% of outstanding shares, Fisher is Alphabet's largest guru shareholder. Other top guru investors include PRIMECAP, Pioneer, Andreas Halvorsen (Trades, Portfolio), Sands, Segalas, Steven Cohen (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and Davis.
Additional trades and portfolio performance
During the quarter, Rolfe also established new investments in Fifth Third Bancorp (FITB, Financial) and The Kraft Heinz Co. (KHC, Financial), added to his AT&T Inc. (T, Financial) holding and cut down a number of other positions, including Edwards Lifesciences Corp. (EW, Financial) and PayPal Holdings Inc. (PYPL, Financial).
Wedgewood's $672 million equity portfolio, which is composed of 38 stocks, is most heavily invested in the technology, financial services and communication services sectors.
The firm posted a return of 32.1% for 2020, outperforming the S&P 500 Index's 18.4% return.
Disclosure: No positions.
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Wedgewood Partners Chief Investment Officer David Rolfe disclosed his portfolio for the fourth quarter of 2020 earlier this week.
The guru's St. Louis-based firm approaches potential investments with the mindset of a business owner, analyzing a handful of undervalued companies that have a dominant product or service, consistent earnings, revenue and dividend growth, are highly profitable and have strong management teams.
In his shareholder letter for the three-month period ended Dec. 31, Rolfe noted the firm was "unusually inactive" in its buying and selling. While the market previously boosted "lockdown stocks" in the first three quarters of the year, it soon switched gears to support "vaccine stocks" in November. The guru also commented on the Federal Reserve's response to the Covid-19 pandemic, calling the $3.2 trillion expansion in its balance sheet over three months not "just a safety net, but a trampoline for nearly every asset class."
"Assuming the risk of COVID fades materially early this year, global economies, riding a tidal wave of central bank liquidity, are set to continue recovering throughout 2021," he wrote. "The stock market has aggressively priced in such an event – even to the extent that current expectations of a robust 2021 are still too conservative."
Taking these developments into consideration, Rolfe established three new positions, added to one holding and trimmed a slew of other existing investments during the quarter. The most significant trades included a new holding in Progressive Corp. (PGR, Financial) and reductions of the Tractor Supply Co. (TSCO, Financial), Facebook Inc. (FB, Financial), Apple Inc. (AAPL, Financial) and Alphabet Inc. (GOOGL, Financial) positions.
Progressive
The guru invested in 134,104 shares of Progressive (PGR, Financial), allocating 1.97% of the equity portfolio to the holding. The stock traded for an average price of $94.62 per share during the quarter.
The Mayfield, Ohio-based insurance company has a $51.6 billion market cap; its shares were trading around $88.44 on Friday with a price-earnings ratio of 9.13, a price-book ratio of 3.04 and a price-sales ratio of 1.21.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. The valuation rank of 5 out of 10, however, indicates it is fairly valued since the price-earnings and price-book ratios are nearing multiyear lows.
In his quarterly letter, Rolfe noted that even though growth investors have widely avoided financial stocks over the past decade, there are "a handful of superior" companies in this space that "can generate attractive growth at superior returns." He went on to say that Progessive "fits the bill" as it is "capable of driving double-digit top-line growth, thanks to a decade-plus of property and casualty underwriting innovation, combined with an aggressive, but prudent, marketing strategy."
Despite having a comfortable level of interest coverage, GuruFocus rated Progressive's financial strength 4 out of 10. The return on invested capital also surpasses the weighted average cost of capital, indicating there is good value creation.
The company's profitability scored a 7 out of 10 rating on the back of strong margins and returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6, which suggests operations are stable. Consistent earnings and revenue growth also contributed to a predictability rank of three out of five stars. According to GuruFocus, companies with this rank return an average of 8.2% annually over a 10-year period.
Of the gurus invested in Progressive, Pioneer Investments has the largest stake with 0.67% of outstanding shares. PRIMECAP Management, Glenn Greenberg, Andreas Halvorsen, the Parnassus Endeavor Fund, Tom Gayner, John Rogers, Jim Simons' Renaissance Technologies and several other gurus also have positions in the stock.
Tractor Supply
Impacting the equity portfolio by -1.81%, the investor curbed his Tractor Supply (TSCO, Financial) position by 23.69%, selling 79,865 shares. Shares traded for an average price of $139.90 each during the quarter.
Rolfe now holds 257,331 shares total, accounting for 5.38% of the equity portfolio and is his eighth-largest holding. GuruFocus estimates he has gained 31.02% on the investment since establishing it in the fourth quarter of 2016.
The retailer of farm and ranch supplies, which is headquartered in Brentwood, Tennessee, has a market cap of $19.9 billion; its shares were trading around $170.79 on Friday with a price-earnings ratio of 26.76, a price-book ratio of 10.46 and a price-sales ratio of 1.89.
According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 4 out of 10 aligns with this assessment, especially since the share price and price ratios are approaching multiyear highs.
Despite selling off some of its shares in order to buy Progressive, Rolfe said in his letter he still thinks Tractor Supply's long-term benefits continue to be underappreciated by the market.
"The Company should be able to sustain its new customer base due to investments made both pre-pandemic and post-pandemic which should drive double-digit earnings growth rates at very attractive returns on capital," he wrote. "As such, we continue to maintain Tractor Supply at a full weighting in portfolios."
Tractor Supply's financial strength was rated 6 out of 10 by GuruFocus. Although the company has issued approximately $561.4 million in new long-term debt over the past three years, it is at a manageable level due to having sufficient interest coverage. The Altman Z-Score of 5.41 also indicates the company is in good standing even tough assets are growing at a faster rate than revenue is growing.
The company's profitability scored a 9 out of 10 rating despite a declining operating margin. Tractor Supply is supported by strong returns that outperform a majority of industry peers, a moderate Piotroski F-Score of 6 and steady earnings and revenue growth, which resulted in a five-star predictability rank. GuruFocus says companies with this rank return, on average, 12.1% annually.
With 0.69% of outstanding shares, Pioneer is the company's largest guru shareholder. Simons' firm, Mario Gabelli, Joel Greenblatt, Lee Ainslie and John Hussman also own the stock.
Facebook
The investor trimmed the Facebook (FB, Financial) position by 6.83%, selling 12,436 shares. The trade had an impact of -0.51% on the equity portfolio. During the quarter, the stock traded for an average per-share price of $274.26.
Rolfe now holds 169,700shares total, representing 8.84% of the equity portfolio and is his fourth-largest holding. According to GuruFocus, he has gained 14.81% on the investment since establishing it in the first quarter of 2018.
The Menlo Park, California-based social media company has a $746.92 billion market cap; its shares were trading around $262.40 on Friday with a price-earnings ratio of 25.97, a price-book ratio of 5.94 and a price-sales ratio of 8.8.
Based on the Peter Lynch chart, the stock appears to be overvalued.
GuruFocus rated Facebook's financial strength 7 out of 10. In addition to comfortable interest coverage, the company is supported by a high Altman Z-score of 17.2. The ROIC is also significantly higher than the WACC, indicating good value creation.
The company's profitability scored a 10 out of 10 rating, supported by an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotrsoki F-Score of 6. Consistent earnings and revenue growth also contributed to a five-star predictability rank.
Frank Sands has the largest stake in Facebook with 0.37% of outstanding shares. Chase Coleman, Spiros Segalas, Ken Fisher, Pioneer, Steve Mandel, Dodge & Cox, Chris Davis and First Eagle Investment, among others, also have significant holdings in the stock.
Apple
With an impact of -0.50% on the equity portfolio, Rolfe reduced the Apple (AAPL, Financial) holding by 5.73%, selling 27,197 shares. During the quarter, the stock traded for an average price of $120.34 per share.
He now holds 447,836 shares total, making up 8.84% of the equity portfolio and remaining the guru's largest holding. GuruFocus estimates Rolfe has gained 81.19% on the investment so far.
The tech company, which is headquartered in Cupertino, California, has a market cap of $2.16 trillion; its shares were trading around $129.05 on Friday with a price-earnings ratio of 34.9, a price-book ratio of 33.3 and a price-sales ratio of 7.57.
The Peter Lynch chart suggests the stock is overvalued. The GuruFocus valuation rank of 1 out of 10 supports this assessment since the share price and price ratios are all approaching 10-year highs.
Apple's financial strength was rated 6 out of 10 by GuruFocus, driven by comfortable interest coverage and a robust Altman Z-Score of 6.22. The company's ROIC is also significantly above its WACC, suggesting it is creating value as it grows.
The company's profitability fared even better with an 8 out of 10 rating. While the operating margin is in decline, it is still outperforming versus industry peers. Apple also has strong returns, a high Piotroski F-Score of 7, which suggests business conditions are healthy, and consistent earnings and revenue growth. It also has a 2.5-star predictability rank. GuruFocus says companies with this rank return an average of 7.3% annually.
Warren Buffett is Apple's largest guru shareholder with a 5.58% stake. Other top guru investors include Fisher, Pioneer, Segalas, Grantham, PRIMECAP, David Carlson, Gayner and Bill Gates' foundation trust.
Alphabet
The guru sold 2,055 Class C shares of Alphabet (GOOGL, Financial), impacting the equity portfolio by -0.48% and the holding by -7.39%. Shares traded for an average price of $1,685.58 each during the quarter.
He now holds 25,737 shares total, giving it 6.71% space in the equity portfolio. It is also Rolfe's fifth-largest holding. He has gained around 81.24% on the investment.
The tech conglomerate based in Mountain View, California, which owns Google, YouTube and a number of other businesses, has a market cap of $1.42 trillion; its shares were trading around $2,098.39 on Friday with a price-earnings ratio of 35.72, a price-book ratio of 6.88 and a price-sales ratio of 8.42.
According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 3 out of 10 supports this assessment since the share price and price ratios are approaching 10-year highs.
In his quarterly letter, Rolfe said the Google business "showed some modest expense leverage after several quarters of heavy reinvestment, driving double-digit earnings growth" for Alphabet.
"We would not be surprised if that leverage is short-lived," he wrote. "However, Alphabet continues to meaningfully under-earn relative to its potential, and we welcome any effort that brings forward, or at least highlights, the Company's pent-up earnings power. On the latter score, Alphabet announced it will be providing more detailed operating segment profit data in the coming year."
Alphabet's financial strength was rated 8 out of 10 by GuruFocus on the back of adequate interest coverage and a robust Altman Z-Score of 11.02. Although assets are building up at a faster rate than revenue is growing, indicating it may be becoming less efficient, the ROIC eclipses the WACC.
The company's profitability scored a 9 out of 10 rating, driven by strong margins and returns that outperform a majority of competitors. Alphabet also has a moderate Piotroski F-Score of 4 and consistent earnings and revenue growth contributed to a predictability rank of five out of five stars.
With 0.25% of outstanding shares, Fisher is Alphabet's largest guru shareholder. Other top guru investors include PRIMECAP, Pioneer, Andreas Halvorsen, Sands, Segalas, Steven Cohen, Bill Nygren and Davis.
Additional trades and portfolio performance
During the quarter, Rolfe also established new investments in Fifth Third Bancorp (FITB, Financial) and The Kraft Heinz Co. (KHC, Financial), added to his AT&T Inc. (T, Financial) holding and cut down a number of other positions, including Edwards Lifesciences Corp. (EW, Financial) and PayPal Holdings Inc. (PYPL, Financial).
Wedgewood's $672 million equity portfolio, which is composed of 38 stocks, is most heavily invested in the technology, financial services and communication services sectors.
The firm posted a return of 32.1% for 2020, outperforming the S&P 500 Index's 18.4% return.
Disclosure: No positions.
Wedgewood Partners Chief Investment Officer David Rolfe disclosed his portfolio for the fourth quarter of 2020 earlier this week.
The guru's St. Louis-based firm approaches potential investments with the mindset of a business owner, analyzing a handful of undervalued companies that have a dominant product or service, consistent earnings, revenue and dividend growth, are highly profitable and have strong management teams.
In his shareholder letter for the three-month period ended Dec. 31, Rolfe noted the firm was "unusually inactive" in its buying and selling. While the market previously boosted "lockdown stocks" in the first three quarters of the year, it soon switched gears to support "vaccine stocks" in November. The guru also commented on the Federal Reserve's response to the Covid-19 pandemic, calling the $3.2 trillion expansion in its balance sheet over three months not "just a safety net, but a trampoline for nearly every asset class."
"Assuming the risk of COVID fades materially early this year, global economies, riding a tidal wave of central bank liquidity, are set to continue recovering throughout 2021," he wrote. "The stock market has aggressively priced in such an event – even to the extent that current expectations of a robust 2021 are still too conservative."
Taking these developments into consideration, Rolfe established three new positions, added to one holding and trimmed a slew of other existing investments during the quarter. The most significant trades included a new holding in Progressive Corp. (PGR, Financial) and reductions of the Tractor Supply Co. (TSCO, Financial), Facebook Inc. (FB, Financial), Apple Inc. (AAPL, Financial) and Alphabet Inc. (GOOGL, Financial) positions.
Progressive
The guru invested in 134,104 shares of Progressive (PGR, Financial), allocating 1.97% of the equity portfolio to the holding. The stock traded for an average price of $94.62 per share during the quarter.
The Mayfield, Ohio-based insurance company has a $51.6 billion market cap; its shares were trading around $88.44 on Friday with a price-earnings ratio of 9.13, a price-book ratio of 3.04 and a price-sales ratio of 1.21.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. The valuation rank of 5 out of 10, however, indicates it is fairly valued since the price-earnings and price-book ratios are nearing multiyear lows.
In his quarterly letter, Rolfe noted that even though growth investors have widely avoided financial stocks over the past decade, there are "a handful of superior" companies in this space that "can generate attractive growth at superior returns." He went on to say that Progessive "fits the bill" as it is "capable of driving double-digit top-line growth, thanks to a decade-plus of property and casualty underwriting innovation, combined with an aggressive, but prudent, marketing strategy."
Despite having a comfortable level of interest coverage, GuruFocus rated Progressive's financial strength 4 out of 10. The return on invested capital also surpasses the weighted average cost of capital, indicating there is good value creation.
The company's profitability scored a 7 out of 10 rating on the back of strong margins and returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6, which suggests operations are stable. Consistent earnings and revenue growth also contributed to a predictability rank of three out of five stars. According to GuruFocus, companies with this rank return an average of 8.2% annually over a 10-year period.
Of the gurus invested in Progressive, Pioneer Investments has the largest stake with 0.67% of outstanding shares. PRIMECAP Management, Glenn Greenberg, Andreas Halvorsen, the Parnassus Endeavor Fund, Tom Gayner, John Rogers, Jim Simons' Renaissance Technologies and several other gurus also have positions in the stock.
Tractor Supply
Impacting the equity portfolio by -1.81%, the investor curbed his Tractor Supply (TSCO, Financial) position by 23.69%, selling 79,865 shares. Shares traded for an average price of $139.90 each during the quarter.
Rolfe now holds 257,331 shares total, accounting for 5.38% of the equity portfolio and is his eighth-largest holding. GuruFocus estimates he has gained 31.02% on the investment since establishing it in the fourth quarter of 2016.
The retailer of farm and ranch supplies, which is headquartered in Brentwood, Tennessee, has a market cap of $19.9 billion; its shares were trading around $170.79 on Friday with a price-earnings ratio of 26.76, a price-book ratio of 10.46 and a price-sales ratio of 1.89.
According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 4 out of 10 aligns with this assessment, especially since the share price and price ratios are approaching multiyear highs.
Despite selling off some of its shares in order to buy Progressive, Rolfe said in his letter he still thinks Tractor Supply's long-term benefits continue to be underappreciated by the market.
"The Company should be able to sustain its new customer base due to investments made both pre-pandemic and post-pandemic which should drive double-digit earnings growth rates at very attractive returns on capital," he wrote. "As such, we continue to maintain Tractor Supply at a full weighting in portfolios."
Tractor Supply's financial strength was rated 6 out of 10 by GuruFocus. Although the company has issued approximately $561.4 million in new long-term debt over the past three years, it is at a manageable level due to having sufficient interest coverage. The Altman Z-Score of 5.41 also indicates the company is in good standing even tough assets are growing at a faster rate than revenue is growing.
The company's profitability scored a 9 out of 10 rating despite a declining operating margin. Tractor Supply is supported by strong returns that outperform a majority of industry peers, a moderate Piotroski F-Score of 6 and steady earnings and revenue growth, which resulted in a five-star predictability rank. GuruFocus says companies with this rank return, on average, 12.1% annually.
With 0.69% of outstanding shares, Pioneer is the company's largest guru shareholder. Simons' firm, Mario Gabelli, Joel Greenblatt, Lee Ainslie and John Hussman also own the stock.
Facebook
The investor trimmed the Facebook (FB, Financial) position by 6.83%, selling 12,436 shares. The trade had an impact of -0.51% on the equity portfolio. During the quarter, the stock traded for an average per-share price of $274.26.
Rolfe now holds 169,700shares total, representing 8.84% of the equity portfolio and is his fourth-largest holding. According to GuruFocus, he has gained 14.81% on the investment since establishing it in the first quarter of 2018.
The Menlo Park, California-based social media company has a $746.92 billion market cap; its shares were trading around $262.40 on Friday with a price-earnings ratio of 25.97, a price-book ratio of 5.94 and a price-sales ratio of 8.8.
Based on the Peter Lynch chart, the stock appears to be overvalued.
GuruFocus rated Facebook's financial strength 7 out of 10. In addition to comfortable interest coverage, the company is supported by a high Altman Z-score of 17.2. The ROIC is also significantly higher than the WACC, indicating good value creation.
The company's profitability scored a 10 out of 10 rating, supported by an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotrsoki F-Score of 6. Consistent earnings and revenue growth also contributed to a five-star predictability rank.
Frank Sands has the largest stake in Facebook with 0.37% of outstanding shares. Chase Coleman, Spiros Segalas, Ken Fisher, Pioneer, Steve Mandel, Dodge & Cox, Chris Davis and First Eagle Investment, among others, also have significant holdings in the stock.
Apple
With an impact of -0.50% on the equity portfolio, Rolfe reduced the Apple (AAPL, Financial) holding by 5.73%, selling 27,197 shares. During the quarter, the stock traded for an average price of $120.34 per share.
He now holds 447,836 shares total, making up 8.84% of the equity portfolio and remaining the guru's largest holding. GuruFocus estimates Rolfe has gained 81.19% on the investment so far.
The tech company, which is headquartered in Cupertino, California, has a market cap of $2.16 trillion; its shares were trading around $129.05 on Friday with a price-earnings ratio of 34.9, a price-book ratio of 33.3 and a price-sales ratio of 7.57.
The Peter Lynch chart suggests the stock is overvalued. The GuruFocus valuation rank of 1 out of 10 supports this assessment since the share price and price ratios are all approaching 10-year highs.
Apple's financial strength was rated 6 out of 10 by GuruFocus, driven by comfortable interest coverage and a robust Altman Z-Score of 6.22. The company's ROIC is also significantly above its WACC, suggesting it is creating value as it grows.
The company's profitability fared even better with an 8 out of 10 rating. While the operating margin is in decline, it is still outperforming versus industry peers. Apple also has strong returns, a high Piotroski F-Score of 7, which suggests business conditions are healthy, and consistent earnings and revenue growth. It also has a 2.5-star predictability rank. GuruFocus says companies with this rank return an average of 7.3% annually.
Warren Buffett is Apple's largest guru shareholder with a 5.58% stake. Other top guru investors include Fisher, Pioneer, Segalas, Grantham, PRIMECAP, David Carlson, Gayner and Bill Gates' foundation trust.
Alphabet
The guru sold 2,055 Class C shares of Alphabet (GOOGL, Financial), impacting the equity portfolio by -0.48% and the holding by -7.39%. Shares traded for an average price of $1,685.58 each during the quarter.
He now holds 25,737 shares total, giving it 6.71% space in the equity portfolio. It is also Rolfe's fifth-largest holding. He has gained around 81.24% on the investment.
The tech conglomerate based in Mountain View, California, which owns Google, YouTube and a number of other businesses, has a market cap of $1.42 trillion; its shares were trading around $2,098.39 on Friday with a price-earnings ratio of 35.72, a price-book ratio of 6.88 and a price-sales ratio of 8.42.
According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 3 out of 10 supports this assessment since the share price and price ratios are approaching 10-year highs.
In his quarterly letter, Rolfe said the Google business "showed some modest expense leverage after several quarters of heavy reinvestment, driving double-digit earnings growth" for Alphabet.
"We would not be surprised if that leverage is short-lived," he wrote. "However, Alphabet continues to meaningfully under-earn relative to its potential, and we welcome any effort that brings forward, or at least highlights, the Company's pent-up earnings power. On the latter score, Alphabet announced it will be providing more detailed operating segment profit data in the coming year."
Alphabet's financial strength was rated 8 out of 10 by GuruFocus on the back of adequate interest coverage and a robust Altman Z-Score of 11.02. Although assets are building up at a faster rate than revenue is growing, indicating it may be becoming less efficient, the ROIC eclipses the WACC.
The company's profitability scored a 9 out of 10 rating, driven by strong margins and returns that outperform a majority of competitors. Alphabet also has a moderate Piotroski F-Score of 4 and consistent earnings and revenue growth contributed to a predictability rank of five out of five stars.
With 0.25% of outstanding shares, Fisher is Alphabet's largest guru shareholder. Other top guru investors include PRIMECAP, Pioneer, Andreas Halvorsen, Sands, Segalas, Steven Cohen, Bill Nygren and Davis.
Additional trades and portfolio performance
During the quarter, Rolfe also established new investments in Fifth Third Bancorp (FITB, Financial) and The Kraft Heinz Co. (KHC, Financial), added to his AT&T Inc. (T, Financial) holding and cut down a number of other positions, including Edwards Lifesciences Corp. (EW, Financial) and PayPal Holdings Inc. (PYPL, Financial).
Wedgewood's $672 million equity portfolio, which is composed of 38 stocks, is most heavily invested in the technology, financial services and communication services sectors.
The firm posted a return of 32.1% for 2020, outperforming the S&P 500 Index's 18.4% return.
Disclosure: No positions.Daniel Loeb's Top Trades of the 4th QuarterDaniel Loeb's Top Trades of the 4th Quarter
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