Davis Selected Advisors recently disclosed its portfolio updates for the first quarter of 2021, which ended on March 31.
Founded in 1969, Davis Selected Advisors is an employee-owned investment management firm based in Tuscon, Arizona. The current chairman, Chris Davis (Trades, Portfolio), joined the firm in 1989 and serves as the portfolio manager for the Large Cap Value Portfolios and as a research team member for other portfolios. The firm's investment strategy aims to purchase durable, well-managed businesses at value prices.
Based on its investing strategy, the firm's biggest buys for the quarter were Viatris Inc. (VTRS, Financial) and Alibaba Group Holding Ltd. (BABA, Financial), while its most notable sells were Raytheon Technologies Corp. (RTX, Financial) and Applied Materials Inc. (AMAT, Financial).
Viatris
The firm added 29,562,572 shares, or 252.09%, to its Viatris (VTRS, Financial) holding for a total of 41,289,579 shares. The trade had a 1.80% impact on the equity portfolio. During the quarter, shares traded for an average price of $16.33.
Viatris is a global generic and specialty pharmaceuticals company that was formed from the merger of Mylan N.V. and Pfizer's (PFE) off-patient medicine division in November of 2020. The company's goal is to provide universal access to medicine through its profile of generic, branded generic, brand-name and biosimilar drugs.
On May 25, shares of Viatris traded around $14.98 for a market cap of $18.11 billion. According to the GuruFocus Value chart, the stock is fairly valued.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 0.04 is lower than 92% of industry peers, and the Altman Z-Score of 0.64 indicates the company could face liquidity issues in the next couple of years. The operating margin and net margin have been declining in recent years and are now both in the negatives range at -0.86% and -5.61%.
Alibaba Group Holding
The firm also upped its stake in Alibaba Group Holding (BABA, Financial) by 660,077 shares, or 19.3%, for a total of 4,080,075 shares. The trade had a 0.66% impact on the equity portfolio. Shares traded for an average price of $245.98 during the quarter.
Alibaba is a Chinese multinational conglomerate with holdings in e-commerce, retail, internet and technology assets, among many others. By volume, Alibaba is the largest e-commerce company in the world, with millions of merchants and hundreds of millions of users.
On May 25, shares of Alibaba traded around $211.13 for a market cap of $572.69 billion and a price-earnings ratio of 26.06. According to the GF Value chart, the stock is significantly undervalued.
The company has a financial strength rating of 8 out of 10 and a profitability rating of 8 out of 10. The Piotroski F-Score of 5 out of 9 and Altman Z-Score of 5.01 both suggest a fortress-like balance sheet. The three-year revenue growth rate is 38.2%, while the three-year Ebitda growth rate is 10.1%.
Raytheon Technologies
The firm cut its stake in Raytheon Technologies (RTX, Financial) by 6,645,957 shares, or 59.98%, leaving a remaining investment of 4,434,513 shares. The trade had a -2.29% impact on the equity portfolio. During the quarter, shares traded for an average price of $72.98.
Raytheon Technologies is a global defense company that was formed from the merger of Raytheon Co. and United Technologies in April of 2020. Sharpening its focus on aerospace and defense, the company spun off some of its other businesses before the merger, including the elevators division Otis Worldwide Corp. (OTIS) and the HVAC division Carrier Global Corp. (CARR).
On May 25, shares of Raytheon Technologies traded around $86.26 for a market cap of $130.69 billion. According to the GF Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. The interest coverage ratio of 0.71 and Altman Z-Score of 1.74 suggest the company may not be able to make the interest payments on its debt without securing additional funding. The return on invested capital has plummeted below the weighted average cost of capital, indicating struggles with earning a positive return on investments.
Applied Materials
The firm sold 4,946,492 shares, or 33.62%, of its Applied Materials (AMAT, Financial) holding, leaving a remaining stake of 9,766,030 shares. The trade had a -2.05% impact on the equity portfolio. Shares traded for an average price of $110.39 during the quarter.
Applied Materials is a materials engineering company headquartered in Santa Clara, California. It provides equipment, services and software that are then used in the manufacturing of semiconductor chips for electronics, flat panel displays, smartphones and solar products, among others.
On May 25, shares of Applied Materials traded around $137.50 for a market cap of $126.18 billion and a price-earnings ratio of 28.73. According to the GF Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 7 out of 10 and a profitability rating of 9 out of 10. The Piotroski F-Score of 8 out of 9 and Altman Z-Score of 8.18 both imply a very healthy financial situation. The ROIC has been surpassing the WACC in recent years, indicating the company's recent growth initiatives have been profitable.
Portfolio overview
As of the quarter's end, the firm held 111 common stocks in an equity portfolio valued at $22.85 billion. During the quarter, it established 10 new holdings, sold out of eight stocks and added to or reduced several other positions for a turnover of 6%.
The top holdings were Capital One Financial Corp. (COF, Financial) with 8.81% of the equity portfolio, Wells Fargo & Co. (WFC, Financial) with 7.00% and Applied Materials with 5.71%. In terms of sector weighting, the firm was most invested in financial services, followed distantly by communication services and technology.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.
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