David Rolfe (Trades, Portfolio), the chief investment officer of Wedgewood Partners, disclosed his equity portfolio for the third quarter earlier this month.
The guru's St. Louis-based firm approaches potential investments with the mindset of a business owner, striving to generate significant long-term wealth by analyzing a handful of undervalued companies that have a dominant product or service, consistent earnings, revenue and dividend growth, are highly profitable and have strong management teams.
In his shareholder letter for the three-month period ended Sept. 30, Rolfe once again commented on the Federal Reserve’s efforts to curb inflation, noting the central bank “has finally convinced investors around the globe that they are most serious in channeling their inner-Volcker to rein in inflation. However, getting inflation back to their desired 2% level will not be a surgical operation, but blunt force economic shocks.”
He continued:
“The U.S. bond market’s wild swings have reached elevated levels associated with past financial destruction and concomitant central bank intervention. Discounting the significant lag times interest rate hikes take to filter through the economy is a second order to future wild swings. We’ve never put much stock in mind reading, but we’d guess, considering how long it takes historically for our central bank Mandarins to meaningfully reduce inflation, that Fed Chair Powell will do all in his intestinal fortitude to avoid adding ‘Powell Pivot II’ on his CV. We suggest investors gird themselves for the inevitable epic battle of Powell vs. Brainard.”
Keeping these considerations in mind, Rolfe’s 13F filings show he entered one new position, sold out of one stock and added to or trimmed a number of other existing investments during the quarter. The most significant trades included a boost to the Copart Inc. (CPRT, Financial) holding, reduced bets on Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial), Meta Platforms Inc. (META, Financial) and Starbucks Corp. (SBUX, Financial) as well as the divestment of Keysight Technologies Inc. (KEYS, Financial).
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Copart
The investor upped the Copart (CPRT, Financial) holding by 94.38%, picking up 93,228 shares. The transaction had an impact of 1.86% on the equity portfolio. The stock traded for an average price of $59.54 per share during the quarter.
He now holds 384,002 shares total, accounting for 3.84% of the equity portfolio. GuruFocus says Rolfe has lost an estimated 5.59% on the investment, which was established in the fourth quarter of 2019.
The Dallas-based company, which provides online vehicle auction and remarketing services, has a $31.08 billion market cap; its shares were trading around $64.98 on Monday with a price-earnings ratio of 28.82, a price-book ratio of 6.72 and a price-sales ratio of 8.98.
The GF Value Line suggests the stock is modestly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
Further, the GF Score of 100 out of 100 indicates the company has high outperformance potential, driven by high ranks for profitability, growth, financial strength, GF Value and momentum.
In his letter, Rolfe said Copart “maintains an effective duopoly in U.S. salvage vehicle auctions (along with IAA Inc.) and has been able to flex is salvage business to conform to the changes filtering through from the unprecedented supply (and demand) challenges of the new and used vehicle market.”
Of the gurus invested in Copart, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest stake with 0.16% of its outstanding shares. Ray Dalio (Trades, Portfolio)’s Bridgewater Associates, Steven Cohen (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and several others also own the stock.
Taiwan Semiconductor Manufacturing
Rolfe curbed the Taiwan Semiconductor (TSM, Financial) position by 15.17%, selling 53,026 shares. The transaction impacted the equity portfolio by -0.75%. During the quarter, shares traded for an average price of $82.65 each.
The guru now holds a total of 296,516 shares, which represent 3.82% of the equity portfolio. GuruFocus estimates he has lost 31.55% on the investment so far.
The Taiwanese company, which manufactures semiconductor chips, has a market cap of $415.59 billion; its shares were trading around $80.13 on Monday with a price-earnings ratio of 13.80, a price-book ratio of 4.49 and a price-sales ratio of 5.91.
According to the GF Value Line, the stock is significantly undervalued currently.
Further, the GF Score of 95 out of 100 implies the company has high outperformance potential. While it raked in high scores for four of the criteria, momentum fell short.
Rolfe noted in his letter that Taiwan Semiconductors’ “aggressive investment in leading-edge equipment, tight development with fabless IC designers and embrace of open development libraries, should continue to foster a superior competitive position and attractive long-term growth.”
With a 1.16% stake, Warren Buffett (Trades, Portfolio) is the company’s largest guru shareholder. Other top guru investors include Ken Fisher (Trades, Portfolio), Steve Mandel (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Baillie Gifford (Trades, Portfolio), Frank Sands (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Ron Baron (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Chase Coleman (Trades, Portfolio).
Meta Platforms
The guru reduced the Meta Platforms (META, Financial) investment by 7.64%, selling 16,638 shares and impacting the equity portfolio by -0.46%. The stock traded for an average per-share price of $162.08 during the quarter.
Rolfe now holds 201,118 shares in total, making up 5.13% of the equity portfolio. He has lost an estimated 5% on the long-held investment according to GuruFocus data. It is now his 10th-largest holding.
The social media company formerly known as Facebook, which is headquartered in Menlo Park, California, has a $291.88 billion market cap; its shares were trading around $110.08 on Monday with a price-earnings ratio of 10.49, a price-book ratio of 2.36 and a price-sales ratio of 2.55.
Based on the GF Value Line, the stock appears to be significantly undervalued currently.
Further, the GF Score of 87 indicates the company has good outperformance potential on the back of high ranks for profitability, growth and financial strength despite receiving low marks for GF Value and momentum.
Despite detracting from performance, Rolfe wrote in his letter that Meta has recorded “impressive gains” in its number of advertisers.
“We suspect much of the market’s concern revolves around slowing revenue growth,” he said. “It is fairly evident that there was a tremendous pull-forward of demand for many businesses and services over the past couple of years, and that the normalization of revenue growth from that “pull-forward” is hardly an existential crisis. Further, while Meta’s profit margins have fallen below pre-pandemic levels, it’s important to note that the Company likely hired well in excess of what it needed because it assumed the pandemic induced growth would continue. Meta has plenty of room to moderate its expense base and drive significant value by repurchasing shares at today’s historically depressed multiples.”
Fisher has the largest stake in Meta with 0.44% of its outstanding shares. Dodge & Cox, Baillie Gifford (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), First Eagle, Coleman and Chris Davis (Trades, Portfolio), among several others, also have large holdings.
Starbucks
Impacting the equity portfolio by -0.29%, the investor slashed the Starbucks (SBUX, Financial) position by 22,222 shares. The stock traded for an average price of $84.95 per share during the quarter.
In total, Rolfe now holds 25,390 shares, giving it 0.40% space in the equity portfolio. GuruFocus says he has gained about 23.55% on the investment since the first quarter of 2019.
The Seattle-based coffee retailer has a market cap of $112.40 billion; its shares were trading around $97.92 on Monday with a price-earnings ratio of 34.72 and a price-sales ratio of 3.52.
The GF Value Line suggests the stock is modestly undervalued currently.
The company has good outperformance potential based on its GF Score of 87. It received high ratings for four of the criteria, but only middling marks for financial strength.
Of the gurus invested in Starbucks, Fisher has the largest stake with 0.84% of its outstanding shares. Dalio’s firm and Cohen also have notable investments.
Keysight Technologies
With an impact of -0.37% on the equity portfolio, Rolfe sold all 15,375 remaining shares of Keysight Technologies (KEYS, Financial). Shares traded for an average price of $160.05 each during the quarter.
GuruFocus estimates he gained 66.11% on the investment over its lifetime.
Headquartered in Santa Rosa, California, the company, which manufactures test and measurement equipment and software for electronics, has a $30.87 billion market cap; its shares were trading around $173.03 on Monday with a price-earnings ratio of 28.59, a price-book ratio of 7.90 and a price-sales ratio of 6.
According to the GF Value Line, the stock is fairly valued currently.
Further, the GF Score of 84 indicates the company has good outperformance potential. While it received high ratings for profitability, financial strength and momentum, it got only middling marks for growth and GF Value.
With a 0.59% stake, PRIMECAP Management (Trades, Portfolio) is Keysight’s largest guru shareholder. Other gurus invested in the stock are John Rogers (Trades, Portfolio), Cohen, Simons’ firm, Grantham, Dalio’s firm, Mario Gabelli (Trades, Portfolio), Greenblatt and Paul Tudor Jones (Trades, Portfolio).
Additional trades and portfolio performance
During the quarter, Rolfe also entered a small position in Exxon Mobil Corp. (XOM, Financial), increased the AT&T Inc. (T, Financial) holding and cut back on its investments in PayPal Holdings Inc. (PYPL, Financial), Motorola Solutions Inc. (MSI, Financial) and Visa Inc. (V, Financial).
Wedgewood's $532 million equity portfolio, which is composed of 40 stocks, is most heavily invested in the technology and financial services sectors.
The firm posted a return of 32.1% for 2021, outperforming the S&P 500 Index's 28.7% return.
