The Parnassus Fund released its equity portfolio for the third quarter, which ended Sept. 30, earlier this week.
With the goal of capital appreciation, the San Francisco-based firm, which was founded by Jerome Dodson (Trades, Portfolio) in 1984, invests across the capitalization spectrum in discounted companies that have strong competitive advantages, relevant products or services that will compound growth over the long term and quality management teams. Dodson is also known for being socially responsible, which means he takes the environmental and societal impacts of the business into account.
In 2020, Dodson stepped down from managing the funds, but remained chairman of the board. Then, in July of 2021, Affiliated Managers Group announced it was paying $600 million to acquire a majority stake in Parnassus Investments. The deal closed in October of that year.
Taking its criteria into account, the NPORT-P filing shows the Parnassus Fund established three new positions during the quarter, sold out of three stocks and added to or trimmed a handful of other existing holdings. The most notable trades included new investments in Workday Inc. (WDAY, Financial), Guidewire Software Inc. (GWRE, Financial) and Equifax Inc. (EFX, Financial) and the divestment of Avalara Inc. (AVLR, Financial) and Lululemon Athletica Inc. (LULU, Financial).
Investors should be aware that, just like 13F filings, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, they collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these limited filings can provide valuable information.
Workday
The fund invested in 133,563 shares of Workday (SPLK), dedicating 3.11% of the equity portfolio to the holding. The stock traded for an average price of $156.53 per share during the quarter.
The Pleasanton, California-based company, which provides on-demand financial management and human capital management software, has a $37.08 billion market cap; its shares were trading around $144.14 on Friday with a price-book ratio of 7.05 and a price-sales ratio of 6.33.
The GF Value Line suggests the stock is significantly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
Supported by backtesting data, the GF Score of 74 out of 100 indicates the company is likely to have average performance going forward. Workday received a high grade for GF Value and middling marks for profitability, growth, financial strength and momentum.
Although the company’s assets are building up at a faster rate than its revenue is growing, the high Altman Z-Score of 3.05 indicates it is in good standing. Workday is also being supported by an expanding operating margin and a predictability rank of one out of five stars, which is on watch. According to GuruFocus research, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Workday, Baillie Gifford (Trades, Portfolio) has the largest stake with 2.90% of its outstanding shares. Steve Mandel (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Hotchkis & Wiley, Chase Coleman (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and Andreas Halvorsen (Trades, Portfolio) also have significant positions in the stock.
Guidewire Software
Parnassus picked up 264,248 shares of Guidewire Software (GWRE, Financial), allocating 2.49% of the equity portfolio to the position. During the quarter, shares traded for an average price of $72.27 each.
The fund previously sold out of the stock in the first quarter.
The software company headquartered in San Mateo, California, which offers a platform for property and casualty insurance carriers, has a market cap of $4.66 billion; its shares were trading around $55.22 onFridaywith a price-book ratio of 3.19 and a price-sales ratio of 5.66.
According to the GF Value Line, the stock, while undervalued, is a possible value trap currently. As such, potential investors should conduct thorough research before making a decision.
The GF Score of 71 suggests the company will have average performance going forward on the back of high points for GF Value and financial strength, middling marks for profitability and momentum and a low grade for growth.
The high Altman Z-Score of 3.82 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. Guidewire’s Piotroski F-Score of 2 out of 9, however, warns its operations are in poor shape. It is also supported by a one-star predictability rank.
With a 7.35% stake, Ron Baron (Trades, Portfolio) is Guidewire’s largest guru shareholder. Other guru investors are Wallace Weitz (Trades, Portfolio) and Simons’ firm.
Equifax
The fund entered a 72,957-share investment in Equifax (EFX, Financial), giving it 1.91% space in the equity portfolio. The stock traded for an average per-share price of $195.90 during the quarter.
The Atlanta-based consumer credit company has a $19.92 billion market cap; its shares were trading around $162.77 on Friday with a price-earnings ratio of 26.78, a price-book ratio of 5.24 and a price-sales ratio of 3.90.
Based on the GF Value Line, the stock appears to be modestly undervalued currently.
The GF Score of 87 indicates the company has good future outperformance potential, driven by high grades for profitability, growth, GF Value and momentum. Equifax received middling marks for financial strength.
Despite the company issuing new long-term debt in recent years, it is still manageable due to adequate interest coverage. The Altman Z-Score of 2.92, however, cautions it is under some pressure, while the Sloan ratio is indicative of poor earnings quality. Equifax also has a moderate Piotroski F-Score of 5, meanings conditions are typical of a stable company, as well as a one-star predictability rank.
Al Gore (Trades, Portfolio)’s Generation Investment has the largest stake in Equifax with 3.80% of its outstanding shares. Nygren, Philippe Laffont (Trades, Portfolio), the MS Global Franchise Portfolio (Trades, Portfolio), Simons’ firm, Tom Gayner (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and several other gurus also own the stock.
Avalara
With an impact of -2.46% on the equity portfolio, Dodson’s fund exited its 240,185-share holding of Avalara (AVLR, Financial). During the quarter, the stock traded for an average price of $89.61 per share.
GuruFocus estimates the Parnassus Fund lost 14.23% on the investment over its lifetime.
Headquartered in Seattle, the company, which develops software and solutions for managing taxes, has a market cap of $8.27 billion; its shares were trading around $93.34 on Friday with a price-book ratio of 8.01 and a price-sales ratio of 10.35.
The GF Value Line suggests the stock is significantly undervalued currently.
Based on Avalara’s GF Score of 68, the company’s future performance potential is poor. While it received a high grade for GF Value and middling marks for momentum, financial strength and growth, its profitability is low.
Avalara is supported by an expanding operating margin, a high Altman Z-Score of 3.26 and a moderate Piotroski F-Score of 4. Its revenue per share, however, has declined in recent years.
Of the gurus invested in Avalara, Baron has the largest holding with 0.46% of its outstanding shares. Chuck Royce (Trades, Portfolio), Simons’ firm, Jones and Baillie Gifford (Trades, Portfolio) are also invested in the company.
Lululemon
Impacting the equity portfolio by -2.15%, the fund sold its 54,564 remaining shares of Lululemon (LULU, Financial). Shares traded for an average price of $310.05 each during the quarter.
GuruFocus data shows Parnassus gained approximately 12.20% on the investment.
The Canadian retailer of athletic apparel has a $36.87 billion market cap; its shares were trading around $288.66 on Friday with a price-earnings ratio of 33.87, a price-book ratio of 12.91 and a price-sales ratio of 5.29.
According to the GF Value Line, the stock is significantly undervalued currently.
On the back of strong ratings across the board, Lululemon has a GF Score of 99. As such, the company has high outperformance potential.
While the company’s assets are building up at a faster rate than revenue is growing, the robust Altman Z-Score of 14.41 indicates it is in good shape. Lululemon also has an expanding operating margin, while consistent earnings and revenue growth contributed to a four-star predictability rank. GuruFocus found companies with this rank return, on average, 9.8% annually.
With 0.80% of its outstanding shares, Spiros Segalas (Trades, Portfolio) is Lululemon’s largest guru shareholder. Other gurus who own the stock are Ray Dalio (Trades, Portfolio)’s Bridgewater, Lee Ainslie (Trades, Portfolio), Steven Cohen (Trades, Portfolio), John Hussman (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Jones and Catherine Wood (Trades, Portfolio).
Additional trades and portfolio performance
During the quarter, Dodson’s fund also closed its position in Angi Inc. (ANGI, Financial), boosted its holding of MercadoLibre Inc. (MELI, Financial) and curbed its investments in Monolithic Power Systems Inc. (MPWR, Financial), Ansys Inc. (ANSS, Financial) and KLA Corp. (KLAC, Financial), among others.
Parnassus’ $653 million equity portfolio, which consists of 40 stocks, is largely invested in the technology, industrials and health care sectors.
The Parnassus Fund returned 9.37% in 2021, significantly underperforming the S&P 500’s 28.70% return.
