The Parnassus Endeavor Fund (Trades, Portfolio) recently released its portfolio updates for the second quarter of 2020, which ended on June 30.
The fund is part of Parnassus Investments, which follows a socially responsible value-based strategy, investing in a wide range of deeply discounted, out-of-favor stocks that have long-term competitive advantages and relevancy, quality management and positive scores on ESG (environmental, social and corporate governance) criteria. It is managed by senior research analyst Billy Hwan. Jerome Dodson (Trades, Portfolio), the founder of Parnassus Investments, stepped down from the board of trustees effective Jan. 1 and will no longer be managing the funds, though he will remain chairman of the board.
Earlier in July, Affiliated Managers Group announced that it was paying $600 million to acquire a majority stake in Parnassus Investments, so more changes could be on the way for the firm.
Based on its investing criteria, the fund established five new holdings during the quarter: Gilead Sciences Inc. (GILD, Financial), Merck & Co. Inc. (MRK, Financial), Vertex Pharmaceuticals Inc. (VRTX, Financial), Simon Property Group Inc. (SPG, Financial) and Becton, Dickinson and Co. (BDX, Financial).
Gilead Sciences
The fund established a new position worth 1,949,610 shares in Gilead Sciences (GILD, Financial), impacting the equity portfolio by 2.79%. During the quarter, shares traded for an average price of $66.73.
Headquartered in Foster City, California, Gilead Sciences is a biopharmaceutical giant that develops, manufactures and commercializes innovative drugs in a variety of health care fields with a focus on HIV, AIDS, liver diseases, hematology, oncology, respiratory diseases and cardiovascular conditions.
On July 13, shares of Gilead traded around $68.20 for a market cap of $85.53 billion. According to the GuruFocus Value chart, the stock is modestly undervalued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. While the cash-debt ratio of 0.19 is lower than 81% of industry peers, the Piotroski F-Score of 6 out of 9 indicates the company’s operations are stable. The return on invested capital is typically higher than the weighted average cost of capital, indicating the company is creating value.
Merck
The fund invested in 1,707,302 shares of Merck (MRK, Financial), which had a 2.76% impact on the equity portfolio. Shares traded for an average price of $74.29 during the quarter.
Merck, also known as Merck Sharp & Dohme outside of the U.S. and Canada, is a pharmaceutical giant based in Kenilworth, New Jersey. The company focuses its research and production primarily on vaccines, oncology, infectious diseases and cardio-metabolic disorders.
On July 13, shares of Merck traded around $77.68 for a market cap of $196.69 billion. According to the GF Value chart, the stock is fairly valued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10. The interest coverage ratio of 9.54 is far below the industry median of 16.8, but the Altman Z-Score of 3.47 shows the company is not in danger of bankruptcy. The three-year revenue growth rate is 9%, while the three-year Ebitda growth rate is 6.2%.
Vertex Pharmaceuticals Inc
The fund also picked up 619,438 shares of Vertex Pharmaceuticals (VRTX, Financial), which had a 2.60% impact on the equity portfolio. During the quarter, shares traded for an average price of $209.31.
Boston-based Vertex is a biopharmaceutical company, one of the first to use an explicit strategy of rational drug design (designing molecules to bind to a target) rather than combinatorial chemistry. Its treatment focus is on serious diseases such as sickle cell disease and cystic fibrosis.
On July 13, shares of Vertex traded around $197.98 for a market cap of $51.25 billion. 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 6 out of 10. The cash-debt ratio of 7.7 and interest coverage ratio of 50.78 show the company has plenty of funds to make its debt payments. The ROIC has surpassed the WACC in recent years, indicating a turn to profitability.
Simon Property Group
The fund bought 913,815 shares of Simon Property Group (SPG, Financial), impacting the equity portfolio by 2.48%. Shares traded for an average price of $124.06 during the quarter.
Indiana-based Simon Property Group is the largest real estate investment trust and shopping mall operator in the U.S. Together with apparel-licensing firm Authentic Brands Group, it makes up Sparc Group LLC.
On July 13, shares of Simon Property Group traded around $127.72 for a market cap of $41.96 billion. According to the GF Value chart, the stock is modestly overvalued.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 7 out of 10. The current ratio of 0.71 and Altman Z-Score of 0.88 indicate the company is in danger of bankruptcy and will need to raise additional funds. The three-year revenue growth rate is -5.6%, while the three-year Ebitda growth rate is -8.1%.
Becton, Dickinson and Co.
The fund also invested in 366,949 shares of Becton, Dickinson and Co (BDX, Financial), which had a 1.85% impact on the equity portfolio. During the quarter, shares traded for an average price of $245.55.
Beckton, Dickinson and Co is a medical technology company based in New Jersey. One of the largest companies of its kind, it manufactures and sells medical devices, instrument systems and reagents and also provides consulting and analytics services in related fields.
On July 13, shares of Becton, Dickinson and Co. traded around $248.48 for a market cap of $72.26 billion. According to the GF Value chart, the stock is fairly valued.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10. The interest coverage ratio of 5.09 is below 86% of competitors, but the Altman Z-Score of 2.38 suggests the risk of bankruptcy is still low. The three-year revenue growth rate and three-year Ebitda growth rate are both 3.9%.
Portfolio overview
As of the quarter’s end, the Parnassus Endeavor Fund (Trades, Portfolio) held common stock positions in 41 companies valued at a total of $4.81 billion. The turnover rate for the quarter was 22%.
The top holdings were Charles Schwab Corp. (SCHW) with 4.48% of the equity portfolio, Verizon Communications Inc. (VZ) with 3.99% and Intel Corp. (INTC) with 3.50%. In terms of sector weighting, the fund was most invested in financial services, technology and health care.
