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Jerome Dodson's Parnassus Fund Buys 3 Stocks in 3rd Quarter

Parnassus matches with Match Group, backs Buffett's StoneCo

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Margaret Moran
Oct 20, 2021

Summary

  • The Parnassus Fund bought Match Group, Okta and StoneCo in the third quarter.
  • The fund's biggest sells were Fair Isaac and Grocery Outlet.
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Jerome Dodson (Trades, Portfolio)’s Parnassus Fund recently disclosed its portfolio updates for the third quarter of 2021, which ended on Sept. 30.

The Parnassus Fund’s strategy is to seek long-term capital appreciation through securities that have wide moats, relevancy over the long term, quality management teams, positive performance on environmental, social and governance (ESG) criteria and a market price below intrinsic value.

Dodson, 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. 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 and its funds.

According to the latest 13F filing, the fund made three new buys during the quarter: Match Group Inc. (

MTCH, Financial), Okta Inc. (OKTA, Financial) and StoneCo Ltd. (STNE, Financial). Notable sells included Fair Isaac Corp. (FICO, Financial) and Grocery Outlet Holding Corp. (GO, Financial).

Match Group

The fund established a holding worth 168,730 shares in Match Group (

MTCH, Financial), giving the stock a 2.45% weight in the equity portfolio. During the quarter, shares traded for an average price of $152.33.

Match Group is an online dating services company based in Dallas. It operates a near-complete monopoly on major online dating services worldwide with 45 brands in total, including Tinder, Match.com, Meetic, OkCupid, Hinge, PlentyOfFish, Ship and OurTime.

On Oct. 20, shares of Match Group traded around $159.01 for a market cap of $44.83 billion. According to the GuruFocus Value chart, the stock is significantly overvalued.

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The company has a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.07 is lower than 97% of industry peers, but the Piotroski F-Score of 6 out of 9 indicates the financial situation is stable. The return on invested capital is typically higher than the weighted average cost of capital, meaning the company is creating value for shareholders.

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Okta

The fund bought 88,581 shares of Okta (

OKTA, Financial), giving the stock a 1.95% weight in the equity portfolio. Shares traded for an average price of $248.53 during the quarter.

Okta is an identity and access management software company based in San Francisco. It provides cloud software that helps companies manage and secure user authentication and build identity controls into apps, websites, web services and devices.

On Oct. 20, shares of Okta traded around $256.41 for a market cap of $39.66 billion. According to the GF Value chart, the stock is fairly valued.

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The company has a financial strength rating of 5 out of 10 and a profitability rating of 2 out of 10. The Piotroski F-Score of 4 out of 9 and Altman Z-Score of 8.27 show the company is not in danger of facing liquidity issues. The operating margin and net margin are both deep in the negative range, so the company is likely far from becoming profitable.

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StoneCo

The Fund also invested in 545,524 shares of StoneCo Ltd. (

STNE, Financial), giving the stock a 1.75% weight in the equity portfolio. During the quarter, shares traded for an average price of $52.07.

StoneCo is a Brazilian fintech company that provides an end-to-end, cloud-based technology platform for merchants and integrated partners to conduct e-commerce across in-store, online and mobile channels.

Warren Buffett (Trades, Portfolio) is also known to hold a stake in this company.

On Oct. 20, shares of StoneCo traded around $39.32 for a market cap of $12.17 billion. According to the Peter Lynch chart, the stock is trading above its intrinsic value but below its median historical valuation.

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The company has a financial strength rating of 4 out of 10 and a profitability rating of 5 out of 10. At 2.95, the interest coverage ratio is lower than 89% of industry peers, though the Piotroski F-Score of 4 out of 9 indicates the balance sheet is stable. The company has a three-year revenue per share growth rate of 37.4% and a three-year Ebitda per share growth rate of 73.6%.

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Fair Isaac

The fund sold out of its 43,769-share holding in Fair Isaac (

FICO, Financial), impacting the equity portfolio by -1.95%. Shares traded for an average price of $475.97 during the quarter.

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Fair Isaac, better known to most Americans as FICO, is a credit scoring company based in San Jose, California. It provides one of the main three credit scores that is used to measure consumer credit risk, determining how much each person can borrow and at what rates.

On Oct. 20, shares of Fair Isaac traded around $409.84 for a market cap of $11.66 billion. According to the GF Value chart, the stock is fairly valued.

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The company has a financial strength rating of 5 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 0.21 is on the low end of the spectrum, but the Altman Z-Score of 8.09 shows the company is not in danger of bankruptcy. The ROIC is typically higher than the WACC, meaning the company is creating value as it grows.

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Grocery Outlet Holding

The Fund also exited its 480,372-share investment in Grocery Outlet Holding (

GO, Financial), which had a -1.48% impact on the equity portfolio. During the quarter, shares traded for an average price of $28.81.

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Grocery Outlet operates a chain of discount supermarkets that offer overstocked and closeout products from a wide range of suppliers. The California-based company has stores in California, Oregon, Washington, Idaho, Nevada and Pennsylvania.

On Oct. 20, shares of Grocery Outlet traded around $23.05 for a market cap of $2.22 billion. According to the Peter Lynch chart, the stock is trading above its intrinsic value but below its median historical valuation.

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The company has a financial strength rating of 4 out of 10 and a profitability rating of 4 out of 10. The Piotroski F-Score of 6 out of 9 and Altman Z-Score of 2.37 show the company is not likely to go bankrupt within the next couple of years. The company has a three-year revenue per share growth rate of 4.4% and a three-year Ebitda growth rate of 2.5%.

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Portfolio overview

As of the quarter’s end, the fund held shares in 42 common stocks valued at a total of $1.08 billion. The turnover rate for the quarter was 7%.

The top holdings were Cadence Design Systems Inc. (

CDNS, Financial) with 4.22% of the equity portfolio, Agilent Technologies Inc. (A, Financial) with 4.03% and Old Dominion Freight Line Inc. (ODFL, Financial) with 3.85%.

In terms of sector weighting, the fund was most invested in technology, health care and consumer cyclical.

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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.
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 SEC filings for the quarter in question and may not include non-U.S.-listed international stocks or changes made after the quarter ended.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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