Davis Selected Advisors recently disclosed its portfolio updates for the second quarter of 2021, which ended on June 30.
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 top buys for the quarter were DiDi Global Inc. (DIDI, Financial) and New Oriental Education & Technology Group Inc. (EDU, Financial), while its biggest sells were Carrier Global Corp. (CARR, Financial) and Alphabet Inc. (GOOG, Financial).
DiDi Global
The firm established a new holding of 43,449,548 shares in DiDi Global Inc. (DIDI, Financial), impacting the equity portfolio by 2.28%. During the quarter, shares traded for an average price of $14.14.
Founded in 2012, Didi Chuxing (also known as Xiaoju Kuaizhi) is the most prominent Chinese ride-sharing giant. It has grown to have approximately 493 million annual active riders and 15 million annual active drivers after beating out Uber’s (UBER) China business in 2016.
On Aug. 16, shares of DiDi traded around $8.03 for a market cap of $38.71 billion. Since the stock when public at the end of June, shares are down 43%.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 1 out of 10. After a successful public offering, the cash-debt ratio stands at 4.32, while the debt-to-Ebitda ratio is 1.56. Although the net margin is 13.01%, the operating margin is -15.78%, meaning the company is close to being profitable but is not quite there yet.
New Oriental Education & Technology Group
The firm added 35,821,178 shares, or 50.78%, to its investment in New Oriental Education & Technology Group (EDU, Financial) for a total of 106,357,379 shares. The trade had a 1.21% impact on the equity portfolio. Shares traded for an average price of $12.17 during the quarter.
New Oriental is the largest provider of private education services in China. The Beijing-based company focuses on teaching students the skills they need to succeed in life and in the workplace, and its offerings include language programs, tutoring, test preparation and primary and secondary schools.
On Aug. 16, shares of New Oriental traded around $1.91 for a market cap of $3.30 billion. According to the GuruFocus Value chart, the stock is a possible value trap, meaning its low valuation may be justified.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 9 out of 10. The Altman Z-Score of 1.37 indicates potential liquidity issues, though the Piotroski F-Score of 5 out of 9 is typical of a financially stable company. The return on invested capital has been declining over the years even as the weighted average cost of capital has remained around the same level, indicating the company is becoming less profitable.
Carrier Global
The firm cut its holding in Carrier Global (CARR, Financial) by 14,946,521 shares, or 91.25%, leaving a remaining stake of 1,432,778 shares. The trade had a -2.76% impact on the equity portfolio. During the quarter, shares traded for an average price of $44.63.
Carrier Global is one of the largest and most reputable HVAC providers in the world, with a presence in the Americas, Europe, Asia Pacific and Middle East and Africa regions. It was spun off from parent company Raytheon before its merger with United Technologies.
On Aug. 16, shares of Carrier traded around $56.60 for a market cap of $49.18 billion. Since spinning off from its parent company in March of 2020, the stock has gained 371%.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 4 out of 10. While the cash-debt ratio of 0.25 is lower than 73% of industry peers, the Altman Z-Score of 3.09 suggests the company is not in danger of bankruptcy. The ROIC is higher than the WACC, indicating the company is creating value as it grows.
Alphabet
The firm also reduced its Alphabet (GOOG, Financial) holding by 123,689 shares, or 21.38%, for a remaining position worth 454,927 Class C shares. The trade impacted the equity portfolio by -1.12%. Shares traded for an average price of $2375.56 during the quarter.
Based in Mountain View, California, Alphabet is a multinational conglomerate that was formed as part of a restructuring of Google in 2015, in which Alphabet became the parent company of Google and several former Google subsidiaries.
On Aug. 16, shares of Alphabet traded around $2767.87 for a market cap of $1.84 trillion. According to the GF Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 8 out of 10 and a profitability rating of 9 out of 10. The interest coverage ratio of 247.68 and Altman Z-Score of 13.86 show a fortress-like balance sheet. The three-year revenue per share growth rate is 16.5%, while the three-year Ebitda per share growth rate is 20.2%.
Portfolio overview
As of the quarter’s end, the firm held 119 common stocks in an equity portfolio valued at $24.33 billion. The turnover rate was 8%.
The top holdings were Capital One Financial Corp. (COF, Financial) with 9.27% of the equity portfolio, Wells Fargo & Co. (WFC, Financial) with 7.61% and Applied Materials Inc. (AMAT, Financial) with 5.27%. In terms of sector weighting, the firm was most invested in financial services, followed distantly by communication services and technology.
