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Jeremy Grantham's Top 5 Trades of the 2nd Quarter

Boston-based firm releases quarterly portfolio

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James Li
Aug 27, 2021

Summary

  • GMO establishes positions in Constellation Brands and Nuance Communications.
  • Firm boosts Kansas City Southern position and trims Charles Schwab holding.
  • Firm's Inphi holding dissolved due to acquisition.
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Jeremy Grantham (Trades, Portfolio), board chairman of Boston-based Grantham Mayo Van Otterloo, disclosed last week that his firm’s top five trades during the second quarter included new positions in Constellation Brands Inc. (STZ, Financial) and Nuance Communications Inc. (NUAN, Financial), a position boost in Kansas City Southern (KSU, Financial), a reduction in Charles Schwab Corp. (SCHW, Financial) and the closure of its holding in Inphi Corp. (IPHI).

According to the firm’s website, GMO applies a long-term, valuation-based investment philosophy, seeking opportunities at market extremes. GMO believes that standing apart from other investors and pursuing a contrarian investing approach can create high shareholder value in the long term.

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As of June 30, GMO’s $20.05 billion equity portfolio contains 704 stocks, with 82 new positions and a turnover ratio of 14%. The top four sectors in terms of weight are technology, health care, financial services and communication services, representing 28.12%, 17.70%, 14.23% and 9.05% of the equity portfolio.

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Constellation Brands

GMO purchased 565,411 shares of Constellation Brands (

STZ, Financial), giving the position 0.66% weight in the equity portfolio. Shares averaged $234.66 during the second quarter; the stock is fairly valued based on Friday’s price-to-GF Value ratio of 1.02.

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GuruFocus ranks the New York-based beer company’s profitability 7 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7 and an operating margin that has increased approximately 3.10% per year on average over the past five years. Despite this, net profit margins outperform just over 79% of global competitors.

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Other gurus with holdings in Constellation Brands include

Bill Nygren (Trades, Portfolio)’s Oakmark Fund and Pioneer Investments.

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Nuance Communications

The firm purchased 1,907,749 shares of Nuance Communications (

NUAN, Financial), giving the position 0.52% weight in the equity portfolio. Shares averaged $52.44 during the second quarter; the stock is significantly overvalued based on Friday’s price-to-GF Value ratio of 3.25.

GuruFocus ranks the Burlington, Massachusetts-based conversational artificial intelligence software company’s financial strength 5 out of 10 on the back of a strong Altman Z-score of 6 despite interest coverage and debt ratios underperforming more than 80% of global competitors.

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Other gurus with holdings in Nuance Communications include

Philippe Laffont (Trades, Portfolio)’s Coatue Management, PRIMECAP Management (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio)’ Tudor Investment Group.

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Kansas City Southern

GMO purchased 367,482 shares of Kansas City Southern (

KSU, Financial), expanding the position by 255.65% and its equity portfolio by 0.52%. Shares averaged $288.09 during the second quarter; the stock is significantly overvalued based on Friday’s price-to-GF Value ratio of 1.82.

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GuruFocus ranks the Kansas City-based railroad company’s profitability 9 out of 10 on several positive investing signs, which include a five-star business predictability rank and an operating margin that has increased approximately 2.9% per year on average over the past five years and outperforms more than 95% of global competitors.

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Charles Schwab

The firm sold 1,845,660 shares of Charles Schwab (

SCHW, Financial), axing 68.46% of the holding and 0.66% of its equity portfolio. Shares averaged $70.66 during the second quarter; the stock is significantly overvalued based on Friday’s price-to-GF Value ratio of 1.38.

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GuruFocus ranks the Westlake, Texas-based brokerage company’s financial strength 3 out of 10 on several warning signs, which include cash-to-debt and equity-to-asset ratios that underperform more than 65% of global competitors.

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Inphi

GMO’s 530,832-share stake in Inphi was dissolved following Marvell Technology’s (

MRVL, Financial) acquisition of the company in April. The impact to the equity portfolio is -0.52%.

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Marvell designs integrated circuits primarily for data storage, networking and communications. GuruFocus ranks the semiconductor company’s financial strength 4 out of 10 on the back of debt ratios underperforming more than 60% of global competitors despite having a strong Altman Z-score of 5.75.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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