The Parnassus Endeavor Fund (Trades, Portfolio) has revealed its portfolio for the first quarter of 2021. Top trades during the quarter include reductions in the fund's Micron Technology Inc. (MU, Financial) and Applied Materials Inc. (AMAT, Financial) holdings alongside new buys into Verizon Communications Inc. (VZ, Financial), S&P Global Inc. (SPGI, Financial) and Omnicom Group Inc. (OMC, Financial).
The Parnassus Endeavor Fund (Trades, Portfolio) is a fossil-fuel-free and positive workplace fund that selects deeply discounted, out-of-favor stocks with a wider range of expected outcomes. The fund invests in U.S. large-cap companies with long-term competitive advantages and relevancy, quality management teams and positive performance on ESG criteria. Its managers are willing to accept the widest range of outcomes of the Parnassus funds for stocks they believe are only temporarily trading at low prices.
Portfolio overview
At the end of the quarter, the fund's portfolio contained 38 stocks, with 12 new holdings. It was valued at $3.88 billion and has seen a turnover rate of 25%. Top holdings at the end of the quarter were Micron, Applied Materials, Charles Schwab Corp. (SCHW, Financial), Intel Corp. (INTC, Financial) and Cisco Systems Inc. (CSCO, Financial).
By weight, the top three represented sectors are technology (34.63%), financial services (25.45%) and health care (12.69%).
Micron
The fund's Micron (MU, Financial) holding was slashed during the quarter by 49.37% with the sale of 2.46 million shares. The shares traded at an average price of $84.89 during the quarter. Overall, the sale had a -5.83% impact on the equity portfolio and GuruFocus estimates the total gain on the holding at 76.27%.
Micron historically focused on designing and manufacturing DRAM for PCs and servers. The firm then expanded into the NAND flash memory market. It increased its DRAM scale with the purchase of Elpida (completed in mid-2013) and Inotera (completed in December 2016). The firm's DRAM and NAND products are tailored to PCs, data centers, smartphones, game consoles, automotives and other computing devices.
On April 13, the stock was trading at $92.09 per share with a market cap of $103.18 billion. The shares are trading at a significantly overvalued rating 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 2 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The company's strong profitability rank is propped up by operating and net margin percentages that beat at least 75% of industry competitors.
Applied Materials
The quarter also saw the fund's Applied Materials (AMAT, Financial) holding cut down by 55.71%. Managers sold 1.94 million shares that traded at an average price of $110.39 per share during the quarter. The fund has gained an estimated 136.37% on the holding and the sale had a -5.28% impact on the portfolio overall.
Applied Materials is the world's largest supplier of semiconductor manufacturing equipment, providing materials engineering solutions to help make nearly every chip in the world. The company's systems are used in nearly every major process step with the exception of lithography. Key tools include those for chemical and physical vapor deposition, etching, chemical mechanical polishing, wafer- and reticle-inspection, critical dimension measurement and defect-inspection scanning electron microscopes.
As of April 13, the stock was trading at $134.08 per share with a market cap of $123.03 billion. According to the GF Value Line, the shares are trading at a significantly overvalued rating.
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 2 out of 10. There are currently no severe warning signs issued for the company. Cash flows have settled at strong levels for the company in the last several years that easily support dividend payouts.
Verizon
A new holding was established for the fund in Verizon (VZ, Financial) with the purchase of 2.03 million shares. The shares traded at an average price of $56.40 during the quarter. Overall, the purchase had a 3.05% impact on the equity portfolio and GuruFocus estimates the total gain of holding at 2.07% during its short lifetime.
Verizon is primarily a wireless business. It serves about 89 million postpaid and 4 million prepaid phone customers and connects another 24 million data devices, like tablets, via its nationwide network, making it the largest U.S. wireless carrier. Recent investments, including fiber network construction, have supported the wireless business in addition to expanding traditional fixed-line capabilities. Verizon Media Group, the online media and advertising firm formed with the acquisitions of AOL and Yahoo, provides the remainder of revenue.
The stock was trading at $57.61 per share with a market cap of $238.51 billion on April 13. 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 7 out of 10 and a valuation rank of 5 out of 10. There are currently two severe warning signs issued for a declining operating margin and an Altman Z-Score of 1.6 placing the company in the distress column. Debt levels have risen over the last three years and the company's cash-to-debt ratio of 0.15 ranks it lower than 70.22% of the telecommunications services industry.
S&P Global
The fund established a new holding in S&P Global (SPGI, Financial) during the first quarter. It was established with the purchase of 281,500 shares that traded at an average price of $332.91 per share during the quarter. The fund has already gained an estimated 11.96% on the holding and the purchase impacted the portfolio by 2.56%.
S&P Global provides data and benchmarks to capital and commodity market participants. S&P Ratings, which constitutes over 40% of the company's revenue and over 50% of its operating income, is the largest credit rating agency in the world. The firm's other segments include Market Intelligence, Indices and Platts. Market Intelligence provides desktop tools and other data solutions to investment banks, corporations and other entities. Indices provides benchmarks for financial markets and is monetized through subscriptions, asset-based fees and transaction-based royalties. Platts provides benchmarks to commodity markets, principally petroleum.
On April 13, the stock was trading at $373.66 per share with a market cap of $89.80 billion. The shares are given a modestly overvalued rating according to the GF Value Line.
GuruFocus gives the company a financial strength ratio of 5 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 1 out of 10. There are currently no severe warning signs issued for the company. The company's strong return on invested capital has easily supported the weighted average cost of capital over the years with the exception of 2014.
Omnicom
Rounding out the fund's top five trades of the quarter is a new buy into Omnicom (OMC, Financial). Mangers purchased 1.26 million shares at an average price of $68.99 per share during the quarter to establish the holding. Overall, the purchase had a 2.42% impact and GuruFocus estimates the total gain of the holding at 13.60%.
Omnicom is the world's second-largest ad holding company based on annual revenue. The American company's services, which include traditional and digital advertising and public relations, are provided worldwide, with over 85% of its revenue coming from more developed regions such as North America and Europe.
As of April 13, the stock was trading at $78.62 per share with a market cap of $16.91 billion. According to the GF Value Line, the shares are trading at a modestly overvalued rating.
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 declining revenue per share and an Altman Z-Score of 1.51 placing the company in the distress column. Last year the company saw revenue and net income tail off for the first time in almost a decade.
Disclosure: Author owns no stocks mentioned.
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