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Graham Griffin
Graham Griffin
Articles (193) 

Charles de Vaulx's Top 4th-Quarter Trades

Guru cuts Google parent Alphabet

Charles de Vaulx (Trades, Portfolio), chief investment officer of International Value Advisors, has revealed the IVA Worldwide Fund portfolio for the fourth quarter of 2020. Top trades include new buys into Danone SA (XPAR:BN) and Bayer AG (XTER:BAYN) and reductions in Bollore SA (XPAR:BOL) and H U Group Holdings Inc. (TSE:4544). The fund's Alphabet Inc. (NASDAQ:GOOG) holding was eliminated during the quarter.

The guru employs a value-orientated approach and will seek investments in companies of any size. Typical investments include companies with financial strength, temporarily depressed earnings or entrenched franchises. The overriding attribute of these companies is that their securities offer fundamental value. The majority of the portfolio is invested in international companies.

Portfolio overview

At the end of the quarter, the portfolio contained 55 stocks, with two new holdings. It was valued at $1.35 billion and has seen a turnover rate of 6%. Top holdings at the end of the quarter were Bayerische Motoren Werke AG (XTER:BMW), Astellas Pharma Inc. (TSE:4503), Berkshire Hathaway Inc. (BRK.B), Cie Financiere Richemont SA (XSWX:CFR) and Newmont Corp. (NEM).

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By weight, the top three sectors represented are financial services (24.70%), consumer cyclical (20.72%) and consumer defensive (14.20%).

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Danone

The fund established a new holding in Danone SA (XPAR:BN) for the first time since 2016. The holding was established with the purchase of 651,629 shares that traded at an average price of 52.66 euros ($63.68) per share during the quarter. Overall, the purchase had a 3.17% impact on the portfolio and GuruFocus estimates the total gain of the holding at 57.11%.

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Following the acquisition of WhiteWave, Danone restructured the company into three broad segments: essential dairy and plant-based products, which represents just over half of group revenue; specialised nutrition; and bottled water. The firm's portfolio includes well-known brands such as Danone/Dannon dairy products, Nutrilon and Cow & Gate infant nutrition and Evian and Volvic bottled water. Danone derives about 60% of its annual sales outside Western Europe, up from about just one third in 2001.

On March 2, the stock was trading at 57.24 euros per share with a market cap of 37.19 billion euros. According to the GF Value Line, the stock is trading at a modestly undervalued rating.

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GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 7 out of 10. There are currently no severe warning signs issued for the company. The above-average profitability rank comes in part thanks to a strong operating margin of 14.33% that ranks the company better than 82.54% of competitors.

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Bollore

The long-term holding of Bollore (XPAR:BOL) was slashed by 77.63% with the sale of 7.46 million shares. During the quarter, the shares traded at an average price of 3.31 euros per share. GuruFocus estimates the total gain of the holding at 43.59% and the sale had a -1.94% impact on the portfolio.

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Bollore is an infrastructure company domiciled in France. The company organizes itself into four segments: transportation and logistics, oil logistics, communication and electricity storage and solutions. Transportation and logistics, which contributes the majority of revenue, offers freight forwarding and logistics services. Oil logistics, the next most significant segment, distributes oil and fuel. Communication, which contributes approximately the same share of revenue as oil logistics, provides advertising, cinema and telecommunications services. The company generates 60% revenue from the communications segment.

As of March 2, the stock was trading at 4.03 euros per share with a market cap of 11.81 billion euros. The GF Value Line shows the stock trading at a modestly undervalued rating.

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GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 8 out of 10. There are currently four severe warning signs issued, including a declining operating margin, assets growing faster than revenue and an Altman Z-Score of 0.67 placing the company in the distress column. The company's cash-to-debt ratio of 0.35 ranks it lower than 69.09% of the media industry due to increasing levels of long-term debt.

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Bayer

Another new buy was made during the quarter to establish a holding in Bayer (XTER:BAYN). The purchase consisted of 403,104 shares that traded at an average price of 46.21 euros during the quarter. The purchase made a positive 1.75% impact on the portfolio and GuruFocus estimates the fund has already gained 13.27% on the holding.

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Bayer is a German health care and agriculture conglomerate. Health care provides just over half of the company's sales and includes pharmaceutical drugs as well as vitamins. The company has a crop science business that includes seeds, pesticides, herbicides and fungicides, which was expanded through the acquisition of Monsanto.

The stock was trading at 52.34 euros ($63.29) per share with a market cap of 50.68 billion euros on March 2. The shares are modestly undervalued according to the GF Value Line.

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GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 10 out of 10. There are currently three warning signs issued for new long-term debt, declining revenue per share and an Altman Z-Score of 0.27 placing the company deep into the distress column. The company's current weighted average cost of capital far exceeds the return on invested capital, meaning the company will destroy value as it grows.

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Alphabet

The Alphabet (NASDAQ:GOOG) holding was eliminated after reductions in the two prior quarters. The remaining 16,499 shares traded at an average price of $1,690.43 per share during the quarter. Overall, the sale had a -1.69% impact on the portfolio and GuruFocus estimates the total gain of the holding at 123.12%.

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Alphabet is a holding company, with Google, the internet media giant, as a wholly-owned subsidiary. Google generates 99% of Alphabet revenue, of which more than 85% is from online ads. Google's other revenue is from sales of apps and content on Google Play and YouTube, as well as cloud service fees and other licensing revenue. Sales of hardware such as Chromebooks, the Pixel smartphone and smart homes products, which include Nest and Google Home, also contribute to other revenue. Alphabet's moonshot investments are in its other bets segment, where it bets on technology to enhance health (Verily), faster internet access to homes (Google Fiber), self-driving cars (Waymo) and more. Alphabet's operating margin has been 25% to 30%, with Google at 30% and other bets operating at a loss.

On March 2, the stock was trading at 2,075.84 per share with a market cap of $1.4 trillion. According to the GF Value Line, the shares are modestly overvalued.

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GuruFocus gives the company a financial strength rating of 8 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 3 out of 10. There are currently three severe warning signs issued for assets growing faster than revenue and declining operating and net margin percentages. The company's high financial strength rating is propped up by net income and cash flows that have seen relatively consistent growth over the last decade.

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H U Group Holdings

The fund's H U Group Holdings (TSE:4544) position was also reduced for the third quarter in a row. The holding was cut by 38.48% with the sale of 830,600 shares. During the quarter, the shares traded at 2,818.08 Japanese yen ($26.41) per share on average. GuruFocus estimates the total loss of the holding at 17.94% and the sale had a -1.54% impact on the portfolio.

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H U Group Holdings operates in the health care field, focusing on clinical laboratory testing and reagents. The company is engaged in four main businesses. The clinical laboratory testing business receives samples taken from patients at medical institutions to test for disease and confirm the condition of the patient's health; in vitro diagnostics develops, manufactures and sells testing reagents and equipment inside and outside Japan; the sterilization and related services business provides a range of medical-related services, including sterilization; and the emerging new business and others segment is a new business for future growth.

As of March 2, the stock was trading at 3,300 yen per share with a market cap of 186.99 billion yen. The shares are fairly valued according to the GF Value Line.

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GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 10 out of 10. There are currently three severe warning signs for declining revenue per share and gross and operating margin percentages. Revenue for the company has started to make a comeback after reaching a high in 2016, but net income has failed to see a similar recovery.

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Disclosure: Author owns no stocks mentioned.

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