David Rolfe's Top 6 Trades of the 1st Quarter

Guru takes stakes in Old Dominion and Booking Holdings, adds to Progressive

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Sydnee Gatewood
May 18, 2021
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Wedgewood Partners Chief Investment Officer

David Rolfe (Trades, Portfolio) disclosed his portfolio for the first quarter of 2021 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 March 31, Rolfe noted the "global economy continues to sharply rebound as the world enters the final innings of the pandemic."

"The severity of the pandemic-related economic collapse last year has led, none too surprisingly, to significant shortages across most industries," he wrote. "Coupled with once-in-a-generation pent-up demand, the current breakneck pace of the current economic recovery (both manufacturing and services) is, well, once-in-a-generation as well."

Taking these developments into consideration, Rolfe established two new positions, sold out of Tapestry Inc. (

TPR, Financial), added to one holding and trimmed a slew of other existing investments during the quarter. The most significant trades included new holdings in Old Dominion Freight Line Inc. (ODFL, Financial) and Booking Holdings Inc. (BKNG, Financial), a boost to Progressive Corp. (PGR, Financial) and reductions of the Bristol-Myers Squibb Co. (BMY, Financial), PayPal Holdings Inc. (PYPL, Financial) and Visa Inc. (V, Financial) positions.

Old Dominion Freight Line

After previously exiting a position in Old Dominion Freight Line (

ODFL, Financial) in the second quarter of 2019, the guru invested in a new 66,234-share holding, allocating it to 2.45% of the equity portfolio. The stock traded for an average price of $214.58 per share during the quarter.

The Thomasville, North Carolina-based less-than-truckload shipping company has a $31.26 billion market cap; its shares were trading around $269.94 on Tuesday with a price-earnings ratio of 42.98, a price-book ratio of 9.8 and a price-sales ratio of 7.64.

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

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The valuation rank of 1 out of 10, however, aligns with this assessment since the share pirce and price ratio s are closing in on 10-year highs.

In his quarterly letter, Rolfe acknowledged the previous decision to sell the stock due to concerns regarding the overall trucking industry was "a mistake."

"We were correct to be worried about the trucking industry in 2019, but we were very wrong on how resilient Old Dominion's business model would power through the industry downturn in 2019, as well as the Company's exceptional performance during pandemic-laden 2020," he wrote.

Old Dominion's financial strength and profitability were both rate 9 out of 10 by GuruFocus. It is supported by a comfortable level of interest coverage as well as a robust Altman Z-Score of 19.09, which indicates the company is in good standing. The return on invested capital also surpasses the weighted average cost of capital, indicating there is good value creation.

The company is also supported by an expanding operating margin and strong returns on equity, assets and capital that outperform a majority of competitors. Old Dominion has a high Piotroski F-Score of 7, which suggests business conditions are healthy. Although the company's revenue per share growth has slowed over the past 12 months, it still has a predictability rank of 4.5 out of five stars. According to GuruFocus, companies with this rank return an average of 10.6% annually over a 10-year period.

Of the gurus invested in Old Dominion,

PRIMECAP Management (Trades, Portfolio) has the largest holding with 0.22% of outstanding shares. Pioneer Investments (Trades, Portfolio), Jerome Dodson (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio) also own the stock.

Booking Holdings

Having previously sold out of Booking Holdings (

BKNG, Financial) in the second quarter of 2020, Rolfe picked up a new position of 5,401 shares, dedicating 1.94% of the equity portfolio to it. Shares traded for an average price of $2,219.81 each during the quarter.

The online travel agency headquartered in Norwalk, Connecticut, which owns Booking.com, Priceline.com, Kayak and several other brands, has a market cap of $92.03 billion; its shares were trading around $2,238.59 on Tuesday with a price-earnings ratio of 131.11, a price-book ratio of 19.33 and a price-sales ratio of 16.31.

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

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The valuation rank of 1 out of 10 supports this assessment.

In his quarterly letter, Rolfe said, "The long-term outlook for the global hospitality industry is substantially better compared to when we sold, given the recent emergence of several, well -tolerated, highly efficacious, and widely distributed Covid-19 vaccines. As vaccines are administered to a larger percent of the global population, we expect the negative trends of Covid-19 to tail off, with cross-border travel rapidly improving later in 2021 and into 2022 and beyond."

GuruFocus rated Booking Holdings' financial strength 5 out of 10. As a result of issuing approximately $7.6 billion in new long-term debt over the past three years, the company has poor interest coverage. The Altman Z-Score of 5.1, however, indicates it is in good standing. The ROIC has fallen below the WACC, however, indicating struggles with creating value.

The company's profitability fared better, scoring a 7 out of 10 rating. Even though the operating margin is in decline, Booking is supported by strong returns that outperform a majority of industry peers. It also has a low Piotroski F-Score of 3, which suggests business conditions are in poor shape. As a result of recording losses in operating income and declines in revenue per share over the past several years, the company's one-star predictability rank is on watch. GuruFocus says companies with this rank return, on average, 1.1% annually.

With a 2.23% stake, Dodge & Cox is Booking's largest guru shareholder. Other top guru investors include Pioneer,

Baillie Gifford (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and Hotchkis & Wiley.

Progressive

The investor boosted the Progressive (

PGR, Financial) position by 82%, buying 109,963 shares. The transaction had a 1.62% impact on the equity portfolio. The stock traded for an average per-share price of $90.79 during the quarter.

He now owns 244,067 shares total, which represent 3.59% of the equity portfolio. GuruFocus estimates Rolfe has gained 14.06% on the investment so far.

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The Mayfield, Ohio-based insurance company has a $62.08 billion market cap; its shares were trading around $106.10 on Tuesday with a price-earnings ratio of 9.67, a price-book ratio of 3.58 and a price-sales ratio of 1.4.

Based on the GF Value Line, the stock appears to be fairly valued currently.

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The valuation rank of 5 out of 10 also supports this analysis since the share price and price-sales ratio are both nearing 10-year highs.

Despite having a comfortable level of interest coverage, GuruFocus rated Progressive's financial strength 5 out of 10. The ROIC also eclipses the WACC, 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 high Piotroski F-Score of 8. Consistent earnings and revenue growth also contributed to a predictability rank of three out of five stars. GuruFocus data shows companies with this rank return an average of 8.2% annually.

Pioneer has the largest stake in Progressive with 0.42% of outstanding shares.

Glenn Greenberg (Trades, Portfolio), PRIMECAP, John Rogers (Trades, Portfolio), the Parnassus Endeavor Fund (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Grantham, Tweedy Browne (Trades, Portfolio), John Hussman (Trades, Portfolio), Fisher and Greenblatt also have positions in the stock.

Bristol-Myers Squibb

Impacting the equity portfolio by -3.12%, the investor curbed his Bristol-Myers Squibb (

BMY, Financial) position by 81.68%, selling 338,222 shares. The stock traded for an average price of $62.18 per share during the quarter.

Rolfe now holds 75,835 shares total, accounting for 0.74% of the equity portfolio. GuruFocus estimates he has gained 7.16% on the investment since establishing it in the fourth quarter of 2019.

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The pharmaceutical giant, which is headquartered in New York, has a market cap of $146.45 billion; its shares were trading around $65.61 on Tuesday with a price-book ratio of 3.9 and a price-sales ratio of 3.48.

The GF Value Line suggests the stock is fairly valued currently.

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The valuation rank of 9 out of 10, however, leans more toward undervaluation even though the share price is close to a three-year high.

Bristol-Myers Squibb's financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately $16.8 billion in new long-term debt over the past three years, the company has weak interest coverage. In addition, the Altman Z-Score of 1.86 indicates it is under some pressure since assets are building up at a faster rate than revenue is growing.

The company's profitability scored a 7 out of 10 rating despite having a declining operating margin. Bristol-Myers Squibb also has negative returns that underperform a majority of industry peers and a moderate Piotroski F-Score of 4, indicating business conditions are stable. The one-star predictability rank is on watch as a result of recording losses in operating income over the past three years.

Of the gurus invested in Bristol-Myers Squibb,

Warren Buffett (Trades, Portfolio) has the largest stake with 1.39% of outstanding shares. Other top guru shareholders are the Vanguard Health Care Fund (Trades, Portfolio), Dodge & Cox, PRIMECAP, Jim Simons (Trades, Portfolio)' Renaissance Technologies, Pioneer, Andreas Halvorsen (Trades, Portfolio), Hotchkis & Wiley, Catherine Wood (Trades, Portfolio), Richard Pzena (Trades, Portfolio) and NWQ Managers (Trades, Portfolio).

PayPal

The investor trimmed the PayPal (

PYPL, Financial) position by 26.07%, selling 56,377 shares. The trade had an impact of -1.96% on the equity portfolio. During the quarter, shares traded for an average price of $253.25 each.

Rolfe now holds 159,909 shares total, which make up 5.98% of the equity portfolio and is his seventh-largest holding. GuruFocus says he has gained an estimated 78.09% on the investment.

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The San Jose, California-based online payments company has a $287.62 billion market cap; its shares were trading around $245.37 on Tuesday with a price-earnings ratio of 55.76, a price-book ratio of 14.82 and a price-sales ratio of 12.73.

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

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GuruFocus rated PayPal's financial strength 6 out of 10. In addition to comfortable interest coverage, the company is supported by a high Altman Z-score of 4.31. The ROIC is also significantly higher than the WACC, indicating good value creation.

The company's profitability scored an 8 out of 10 rating, supported by an expanding operating margin, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 7.

With a 0.94% stake, Fisher is PayPal's largest guru shareholder. Pioneer,

Spiros Segalas (Trades, Portfolio), Philippe Laffont (Trades, Portfolio), PRIMCECAP and Wood also have significant holdings.

Visa

With an impact of -1.73% on the equity portfolio, Rolfe reduced the Visa (

V, Financial) holding by 26.64%, selling 53,340 shares. During the quarter, the stock traded for an average per-share price of $210.49.

He now holds 146,874 shares total, giving it 4.79% space in the equity portfolio. GuruFocus stimates Rolfe has gained 123.88% on the investment so far.

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The credit card company, which is headquartered in San Francisco, has a market cap of $496.34 billion; its shares were trading around $225.57 on Tuesday with a price-earnings ratio of 46.6, a price-book ratio of 14.47 and a price-sales ratio of 23.97.

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

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

In his quarterly commentary, Rolfe noted the firm trimmed the position to help pay for Booking Holdings. As countries begin to reopen following the pandemic, the guru expects Visa's cross-border travel and entertainment segment, which has been depressed, to rebound.

Visa's financial strength was rated 6 out of 10 by GuruFocus, driven by comfortable interest coverage and a robust Altman Z-Score of 8.36. The company's ROIC also eclipses its WACC, suggesting it is creating value as it grows.

The company's profitability fared even better with a 9 out of 10 rating. In addition to an expanding operating margin, Visa has strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 5. consistent earnings and revenue growth. The five-star predictability rank is on watch as a result of revenue per share declining over the past year. GuruFocus data indicates companies with this rank return an average of 12.1% annually.

Fisher is Visa's largest guru shareholder with a 1.07% stake. Other top guru investors include

Frank Sands (Trades, Portfolio), Buffett, Pioneer, Chuck Akre (Trades, Portfolio), Segalas, Halvorsen, PRIMECAP, Daniel Loeb (Trades, Portfolio), Cohen, Diamond Hill and Mairs and Power (Trades, Portfolio).

Additional trades and portfolio performance

During the quarter, Rolfe also curbed his investments in Edwards Lifesciences Corp. (

EW, Financial), Apple Inc. (AAPL, Financial), Tractor Supply Co. (TSCO, Financial), Alphabet Inc. (GOOGL, Financial) and many more.

Wedgewood's $650 million equity portfolio, which is composed of 38 stocks, is most heavily invested in the technology, financial services and communication services sectors.

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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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