The MS Global Franchise Fund (Trades, Portfolio) has revealed its portfolio for the fourth quarter of 2020. Top trades include additions to positions in SAP SE (XTER:SAP, Financial), Intercontinental Exchange Inc. (ICE, Financial), Reckitt Benckiser Group PLC (LSE:RB, Financial), Philip Morris International Inc. (PM, Financial) and Microsoft Corp. (MSFT, Financial).
The New York-based fund is managed by a team and invests in high-quality companies from around the world. They seek investments in companies that they believe have resilient businesses franchises and growth potential to achieve long-term capital appreciation.
Portfolio overview
At the end of the fourth quarter, the fund's portfolio contained 33 stocks with no new holdings. It was valued at $3.05 billion and has seen a turnover rate of 5%. Top holdings were Microsoft, Reckitt Benckiser Group, Philip Morris International, Visa Inc. (V, Financial) and Accenture PLC (ACN, Financial).
By weight, the top three sectors represented are consumer defensive (34.33%), health care (21.19%) and technology (20.70%).
SAP
Long-term holding SAP (XTER:SAP, Financial) saw a 28.66% addition during the quarter with the purchase of 235,850 additional shares. During the quarter, the shares traded at an average price of 107.73 euros ($128.02) per share. Overall, the purchase had a 1% impact on the portfolio and GuruFocus estimates the total gain of the holding at 15.92%.
Founded in 1972 by former IBM employees, SAP provides database technology and enterprise resource planning software to enterprises around the world. Across more than 180 countries, the company serves 440,000 customers, approximately 80% of which are small to medium-size enterprises.
On March 9, the stock was trading at 104.66 euros per share with a market cap of 126.06 billion euros. The GF Value Line gives the shares a fair value rating.
GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 6 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The strong profitability rank is propped up by operating and net margin percentages that rank the company better than at 89% of the industry.
Intercontinental Exchange
The fund also doubled down on its Intercontinental Exchange (ICE, Financial) holding. It purchased 246,467 to boost the holding by 47.91%. The shares traded at an average price of $103.81 during the quarter. GuruFocus estimates the firm has gained a total of 15.15% on the holding and the purchase had a 0.93% impact on the portfolio overall.
Intercontinental Exchange is a vertically integrated operator of financial exchanges and provides ancillary data products. Though the company is probably best known for its ownership of the New York Stock Exchange, which it acquired in 2013, it is the operator of a large derivatives exchange as well. The company's largest commodity futures product is the ICE Brent crude futures contract. In addition to the exchanges business that is about 55% of net revenue, Intercontinental Exchange also has mortgage technology (15% of net revenue) and fixed income & data services businesses (30% of net revenue).
As of March 9, the stock was trading at $115.44 per share with a market cap of $64.83 billion. According to the GF Value Line, the shares are fairly valued.
GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 4 out of 10. There are currently two severe warning signs for poor financial strength and an Altman Z-Score of 0.62 placing the company deep into the distress column. The company's cash-to-debt ratio of 0.04 ranks it lower than 95.23% of competitors.
Reckitt Benckiser Group
The fund also added 6.42% to its Reckitt Benckiser Group (LSE:RB, Financial) holding. The 168,429 shares that were purchased traded at an average price of 68.21 pounds ($94.78) per share during the quarter. The holding has a total estimated gain of 3.83% and the purchase had a 0.49% impact.
European companies Reckitt & Coleman and Benckiser combined in 1999 to form Reckitt Benckiser, which recently rebranded to the corporate name RB. The company's products include a variety of household and personal-care brands, such as Calgon, Lysol, Finish and Mucinex. More recently, RB has repositioned its portfolio, and has entered infant formula through the acquisition of Mead Johnson, expanded its consumer health presence by acquiring SSL International, Schiff Nutrition and K-Y, and has exited the food industry. The firm operates in 60 countries and sells products in more than 200, generating around 40% of sales from emerging markets.
The stock was trading at 62.10 pounds per share with a market cap of 44.28 billion pounds on March 9. The shares are trading at a modestly undervalued rating according to the GF Value Line.
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 6 out of 10. There are currently two severe warning signs issued for assets growing faster than revenue and a declining operating margin. Revenue took a dive in 2019, but started to make a comeback in 2020.
Philip Morris International
The fund's Philip Morris International (PM, Financial) holding grew by 4.95% during the quarter with the purchase of 140,629 shares. During the quarter, the shares traded at an average price of $77.91. Overall, the purchase had a 0.38% impact on the portfolio and GuruFocus estimates the total gain of the holding at 6.20%.
Philip Morris International is a leading international tobacco company engaged in the manufacture and sale of cigarettes and other nicotine-containing products in markets outside the United States. Through multidisciplinary capabilities in product development, state-of-the-art facilities and scientific substantiation, the company aims to ensure that its smoke-free products meet adult consumer preferences and rigorous regulatory requirements. Management's vision is that these products ultimately replace cigarettes.
On March 9, the stock was trading at $87.59 per share with a market cap of $136.09 billion. The shares are fairly valued according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 6 out of 10. There is currently one severe warning sign issued for a declining operating margin percentage. The return on invested capital has easily supported the weighted average cost of capital, allowing the company to create value.
Microsoft
Microsoft (MSFT, Financial) also saw a small boost in the fund's portfolio. It grew by 3.76% with the purchase of 43,701 shares. The shares traded at an average price of $215.07 per share during the quarter. GuruFocus estimates the total gain of the holding at 178.77% and the purchase had a 0.32% impact on the portfolio.
Microsoft develops and licenses consumer and enterprise software. It is known for its Windows operating systems and Office productivity suite. The company is organized into three equally sized broad segments: productivity and business processes, intelligence cloud and more personal computing.
As of March 9, the stock was trading at $234.81 per share with a market cap of $1.77 trillion. The stock is significantly overvalued according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 1 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The company's free cash flow has easily supported dividend payouts over the last decade.
Disclosure: Author owns no stocks mentioned.
Read more here:
- Tesla Competitor XPeng's 4th-Quarter Earnings
- Carl Icahn Boosts Xerox, Cuts Back Tenneco
- Caxton Associates Exits Oil Holdings in the 4th Quarter
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
