Spiros Segalas' Top 5 Buys of the 1st Quarter

Guru invests in retail, semiconductor and aerospace companies

Mar 30, 2021

Spiros Segalas (Trades, Portfolio), manager of the Harbor Capital Appreciation Fund, disclosed his portfolio for the first quarter of 2021, which ended on Jan. 31, earlier this week.

Part of Chicago-based Harbor Funds, the guru's fund primarily invests in companies with market caps of at least $1 billion at the time of purchase. He focuses on companies that have strong balance sheets and earnings performance, good sales momentum and growth outlook, a history of high profitability, a unique market position and a capable, committed management team.

Based on these criteria, Segalas established nine new positions, divested of four holdings and added to or curbed a number of other investments during the quarter. Notable buys included new stakes in TJX Companies Inc. (TJX, Financial), Target Corp. (TGT, Financial) and Safran SA (XPAR:SAF, Financial) as well as boosts to the Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial) and LVMH Moet Hennessy Louis Vuitton SE (XPAR:MC, Financial) positions.

TJX Companies

The guru invested in 6.5 million shares of TJX Companies (TJX, Financial), allocating 1.04% of the equity portfolio to the stake. The stock traded for an average price of $64.58 per share during the quarter. He previously sold out of the stock in the second quarter of 2017.

The Framingham, Massachusetts-based discount retail company, which operates a chain of department stores, has a $78.92 billion market cap; its shares were trading around $65.67 on Tuesday with a price-earnings ratio of 1,095.5, a price-book ratio of 13.54 a price-sales ratio of 2.48.

The GF Value Line suggests the stock is significantly overvalued currently based on its historical ratios, past performance and future earnings projections.

The GuruFocus valuation rank of 1 out of 10 also aligns with this assessment since the share price and price ratios are all approaching 10-year highs.

GuruFocus rated TJX Companies' financial strength 5 out of 10. Although the company has weak interest coverage and assets are building up at a faster rate than revenue is growing, the Altman Z-Score of 3.15 indicates it is in good standing. The return on invested capital is also eclipsed by the weighted average cost of capital, indicating issues with creating value.

The company's profitability fared better with a 7 out of 10 rating even though the operating margin is in decline. TJX Companies also has returns that underperform over half of its competitors as well as a moderate Piotroski F-Score of 4, which indicates business conditions are stable. As a result of revenue per share declining over the past three years, the predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in TJX, PRIMECAP Management (Trades, Portfolio) has the largest stake with 1.24% of outstanding shares. Pioneer Investments (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) also have large positions in the stock.

Target

Segalas picked up 1.8 million shares of Target (TGT, Financial), dedicating 0.85% of the equity portfolio to the stake. During the quarter, shares traded for an average price of $175.96 each.

The retail company, which is headquartered in Minneapolis, has a market cap of $99.72 billion; its shares were trading around $199.53 on Tuesday with a price-book ratio of 23.13, a price-book ratio of 6.95 and a price-sales ratio of 1.08.

According to the GF Value Line, the stock is significantly overvalued currently.

The GuruFocus valuation rank of 1 out of 10 also aligns with this assessment since the share price and price ratios are all closing in on 10-year highs.

Target's financial strength was rated 6 out of 10 by GuruFocus on the back of adequate interest coverage and a high Altman Z-Score of 4.11. The ROIC surpasses the WACC, indicating good value creation.

The company's profitability scored an 8 out of 10 rating, driven by strong margins and returns that outperform a majority of its industry peers. Target also has a high Piotroski F-Score of 8, which suggests business conditions are healthy, and consistent earnings and revenue growth contributed to a three-star predictability rank. GuruFocus data shows companies with this rank return an average of 8.2% annually.

With a 1.07% stake, Jim Simons (Trades, Portfolio)' Renaissance Technologies is Target's largest guru shareholder. Pioneer, Mairs and Power (Trades, Portfolio), Ray Dalio (Trades, Portfolio), the Smead Value Fund (Trades, Portfolio), Dodge & Cox and Steven Cohen (Trades, Portfolio), among several other investors, also own the stock.

Safran

Having previously exited a position in Safran (XPAR:SAF, Financial) in the first quarter of 2020, the investor established a new 2.7 million-share stake, giving it 0.85% space in the equity portfolio. The stock traded for an average per-share price of 115.69 euros ($135.57) during the quarter.

The French aerospace company has a market cap of 49.2 billion euros; its shares closed at 115.25 euros on Monday with a price-earnings ratio of 73.88, a price-book ratio of 4.05 and a price-sales ratio of 2.31.

Based on the GF Value Line, the stock appears to be modestly overvalued currently.

The GuruFocus valuation rank of 2 out of 10 aligns with this assessment since both the share price and price-sales ratio are nearing one-year highs.

GuruFocus rated Safran's financial strength 5 out of 10. Although the company has issued approximately 927 million euros in new long-term debt over the past three years, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 1.85, however, indicates it is under some pressure since assets are building up at a faster rate than revenue is growing. The WACC also surpasses the ROIC, suggesting issues with creating value.

The company's profitability scored a 7 out of 10 rating even though its margins are declining. Safran also has margins that outperform over half of its competitors as well as a high Piotroski F-Score of 8 that indicates operations are healthy. As a result of revenue per share declining over the past year, the one-star predictability rank is on watch.

The Tweedy Browne (Trades, Portfolio) Global Value Fund is Safran's largest guru shareholder with 0.33% of outstanding shares. Bestinfond (Trades, Portfolio) also owns the stock.

Taiwan Semiconductor Manufacturing

With an impact of 1.17% on the equity portfolio, Segalas upped his stake in Taiwan Semiconductor (TSM, Financial) by 269.36%, buying 3.8 million shares. The stock traded for an average price of $106.79 per share during the quarter.

Segalas now holds 5.3 million shares total, which represent 1.6% of the equity portfolio. GuruFocus estimates he has gained 11.47% on the investment.

The Taiwanese semiconductor chip manufacturer has a $596.76 billion market cap; its shares were trading around $115.07 on Tuesday with a price-earnings ratio of 30.17, a price-book ratio of 8.46 and a price-sales ratio of 11.66.

The GF Value Line suggests the stock is significantly overvalued currently.

The valuation rank also supports this observation since the share price and price ratios are closing in on 10-year highs.

Taiwan Semiconductor's financial strength was rated 8 out of 10 by GuruFocus. Although the company has issued new long-term debt over the past several years, it is still at a manageable level due to comfortable interest coverage. The robust Altman Z-Score of 12.44 also indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC also surpasses the WACC.

The company's profitability fared even better, scoring a 9 out of 10 rating on the back of an expanding operating margin and strong returns that outperform a majority of industry peers. Taiwan Semiconductor also has a high Piotroski F-Score of 8, strong revenue growth and a 3.5-star predictability rank. GuruFocus says companies with this rank return, on average, 9.3% annually.

Ken Fisher (Trades, Portfolio) is the company's largest guru shareholder with a 0.53% stake. Frank Sands (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Baillie Gifford (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio), Catherine Wood (Trades, Portfolio) and Ron Baron (Trades, Portfolio) also have significant positions in the stock.

LVMH

Segalas boosted the LVMH (XPAR:MC, Financial) stake by 125.14%, buying 661,392 shares. The trade had an impact of 0.99% on the equity portfolio. During the quarter, the stock traded for an average price of 492.57 euros per share.

The guru now holds 1.18 million shares, accounting for 1.79% of the equity portfolio. GuruFocus data shows he has gained an estimated 15.32% on the investment.

The French fashion house, which recently completed its acquisition of Tiffany & Co., has a market cap of 279.5 billion euros; its shares closed at 554.90 euros on Tuesday with a price-earnings ratio of 59.54, a price-book ratio of 7.47 and a price-sales ratio of 6.27.

According to the GF Value Line, the stock is significantly overvalued currently.

The valuation rank of 1 out of 10 aligns with this assessment since the share pirce and price ratios are all approaching 10-year highs.

GuruFocus rated LVMH's financial strength 5 out of 10. Although the company has issued new long-term debt over the past several years, it is still at a manageable level due to adequate interest coverage. It also has a high Altman Z-Score of 3.66 even though assets are building up at a faster rate than revenue is growing.

The company's profitability fared even better with an 8 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 4. The 4.5-star predictability rank is on watch as a result of revenue per share declining over the past year.

Segalas has the largest holding among the gurus, followed by the MS Global Franchise Fund (Trades, Portfolio) with 0.02% of outstanding shares and the Invesco European Growth Fund (Trades, Portfolio).

Additional trades and portfolio performance

During the quarter, Segalas also established positions in Snap Inc. (SNAP, Financial), Snowflake Inc. (SNOW, Financial), Farfetch Ltd. (FTCH, Financial), Okta Inc. (OKTA, Financial), Afterpay Ltd. (ASX:APT) and Airbnb Inc. (ABNB).

The guru's $40.25 billion equity portfolio, which is composed of 61 stocks, is heavily invested in the technology sector at 37.99%, followed by smaller positions in the consumer cyclical (26.96%) and communication services (17.55%) spaces.

According to its fact sheet, the Harbor Capital Appreciation Fund posted a return of 54.43% in 2020, topping the S&P 500's 18.4% return.

Disclosure: No positions.