Ron Baron (Trades, Portfolio), leader of Baron Capital Management, disclosed his portfolio for the fourth quarter of 2021 earlier this month.
The guru’s New York-based firm implements a bottom-up research process to find small and mid-size growth companies with open-ended opportunities and significant competitive advantages to invest in for the long term while they are trading at attractive prices. Baron, who manages the Baron Asset Fund, the Baron Growth Fund and Baron Partners Fund, is also known for ignoring short-term market fluctuations, especially when he believes the fundamental reasons for purchasing the stock have not changed.
Keeping these criteria in mind, the guru entered 43 new positions during the three months ended Dec. 31, divested of 31 stocks and added to or trimmed a number of other existing investments. Notable trades included a new stake in Rivian Automotive Inc. (RIVN, Financial) as well as reduced bets on Zillow Group Inc.’s (ZG, Financial) class A stock and the divestment of its class C stock (Z, Financial). He also curbed the Tesla Inc. (TSLA, Financial) and Meta Platforms Inc. (FB, Financial) stakes. The Acceleron Pharma Inc. (XLRN, Financial) position was dissolved after being acquired by Merck & Co. Inc. (MRK, Financial).
Rivian
The guru invested in 5.8 million shares of Rivian (RIVN, Financial), allocating it to 1.25% of the equity portfolio. The stock traded for an average price of $114.72 per share during the quarter.
The Irvine, California-based electric vehicle manufacturer has a $59.75 billion market cap; its shares closed at $66.37 on Friday with a price-sales ratio of 6,637.
Since its initial public offering in November, the stock has fallen over 30%.
GuruFocus rated Rivian’s financial strength 3 out of 10 and its profitability 1 out of 10.
Of the gurus invested in the stock, Philippe Laffont (Trades, Portfolio) has the largest stake with 3.91% of its outstanding shares. George Soros (Trades, Portfolio), Daniel Loeb (Trades, Portfolio), Baillie Gifford (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Chase Coleman (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) also see value in Rivian.
Zillow Group
With a total impact of -1.03% on the equity portfolio, Baron slashed his holding of Zillow Group’s class A stock (ZG, Financial) by 99.97% and completely sold out of its class C stock (Z, Financial). A combined 5.14 million shares were sold in all. Class A shares traded for an average price of $71.11 each during the quarter, while class C shares traded around $71.41.
He now holds 1,031 class A shares of Zillow. GuruFocus estimates he has gained 81.33% on the investment so far.
The online real estate company, which is headquartered in Seattle, has a market cap of $15.24 billion; its class A shares closed at $60.80 on Friday while its class C shares closed at $60.81.
The GF Value Line suggests the stock is currently a possible value trap based on its historical ratios, past performance and future earnings projections. As such, potential investors should do thorough research before making a decision.
In his quarterly letter to investors, the guru said the decision to exit the position was made as a result of “a rapid change in narrative” following the closure of its home-buying business, which caused shares to tumble.
Zillow’s financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately $4.8 billion in new long-term debt over the past three years, it has weak interest coverage. The Altman Z-Score of 2.57 indicates the company is under some pressure currently.
The company’s profitability fared even worse with a 3 out of 10 rating. In addition to negative margins and returns on equity, assets and capital that underperform a majority of competitors, Zillow has a low Piotroski F-Score of 2 out of 9, meaning operations are in poor shape. The predictability rank of one out of five stars is also on watch as a result of losses in operating income in recent years. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
With 0.19% of outstanding class A shares, Laffont has the largest position in Zillow. Baillie Gifford (Trades, Portfolio), Cohen, Jones and First Pacific Advisors (Trades, Portfolio) also own the stock.
Tesla
Impacting the equity portfolio by -0.39%, the investor trimmed his Tesla (TSLA, Financial) stake by 3.71%, selling 223,005 shares. The stock traded for an average per-share price of $1,012.35 during the quarter.
The guru now holds 5.79 million shares total, accounting for his largest holding with 12.99% of the equity portfolio. GuruFocus data estimates he has gained 1,537.64% on the investment since establishing it in the first quarter of 2014.
The well-known EV manufacturer, which recently moved its headquarters from California to Texas, has an $885.7 billion market cap; its shares closed around $856.98 on Friday with a price-earnings ratio of 174.89, a price-book ratio of 29.32 and a price-sales ratio of 17.91.
According to the GF Value Line, the stock is significantly overvalued currently.
Baron wrote in his quarterly letter that he expects “Tesla’s growing vehicle offering, battery technology and energy businesses to offer meaningful growth opportunities in the future.”
GuruFocus rated Tesla’s financial strength 6 out of 10 on the back of adequate interest coverage and a robust Altman Z-Score of 18.45 that indicates it is in good standing.
The company’s profitability scored a 4 out of 10 rating despite having strong margins and returns that outperform over half of its industry peers. Tesla also has a high Piotroski F-Score of 8, meaning operations are healthy, and a one-star predictability rank.
Baillie Gifford (Trades, Portfolio) has the largest stake in Tesla with 1.08% of outstanding shares. Other gurus with significant holdings include PRIMECAP, Spiros Segalas (Trades, Portfolio), Catherine Wood (Trades, Portfolio) and Laffont.
Meta Platforms
Baron curbed the Meta Platforms (FB, Financial) position by 78.9%, selling 376,725 shares. The trade had an impact of -0.29% on the equity portfolio. During the quarter, the stock traded for an average price of $332.02 per share.
He now holds 100,771 shares total, which make up 0.07% of the equity portfolio. GuruFocus says Baron has gained an estimated 54.84% on the investment, which was established in the second quarter of 2012.
Previously known as Facebook, the Menlo Park, California-based social media company has a market cap of $561.16 billion; its shares closed at $206.16 on Friday with a price-earnings ratio of 14.94, a price-book ratio of 4.59 and a price-sales ratio of 4.99.
Based on the GF Value Line, the stock appears to be significantly undervalued currently.
Meta Platforms’ financial strength was rated 7 out of 10 by GuruFocus, driven by a comfortable level of interest coverage and a robust Altman Z-Score of 10.76. The return on invested capital also exceeds the weighted average cost of capital, suggesting the company is creating value as it grows.
The company’s profitability fared even better with a 9 out of 10 rating. Despite recording a decline in its operating margin, Meta is supported by strong returns that top a majority of competitors as well as a high Piotroski F-Score of 7. Consistent earnings and revenue growth contributed to a 4.5-star predictability rank. GuruFocus data shows companies with this rank return, on average, 10.6% annually.
Ken Fisher (Trades, Portfolio) is Meta’s largest guru shareholder with a 0.34% stake. Baillie Gifford (Trades, Portfolio), Dodge & Cox, Frank Sands (Trades, Portfolio), Coleman, Segalas, First Eagle Investment (Trades, Portfolio) and many other gurus also own shares of Meta Platforms.
Acceleron Pharma
The guru’s 1.3 million-share investment in Acceleron Pharma (XLRN, Financial) was dissolved after the company was acquired by Merck (MRK, Financial) on Nov. 22.
GuruFocus estimates he gained 87.02% on the investment over its lifetime.
According to the terms of the $11.5 billion agreement, Merck paid $180 per share in cash for the Cambridge, Massachusetts-based clinical-stage biopharmaceutical company.
Other gurus who also benefited from the deal were Gabelli, Caxton Associates (Trades, Portfolio) and Jones.
Portfolio composition and performance
During the quarter, the investor also established positions in Nuvei Corp (NVEI, Financial) and JD.com Inc. (JD, Financial), boosted its holdings of Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial), Boyd Gaming Corp. (BYD, Financial) and Iridium Communications Inc. (IRDM, Financial) and whittled down its Stitch Fix Inc. (SFIX) investment.
Baron’s $47.14 billion equity portfolio, which is composed of 404 stocks, is most heavily invested in the consumer cyclical, technology and financial services sectors.
According to its website, the Baron Partners Fund returned 31.73% in 2021, outperforming the S&P 500’s return of 26.9%.
