T Rowe Price Equity Income Fund (Trades, Portfolio), part of Baltimore-based T. Rowe Price Group Inc. (TROW, Financial), disclosed in a portfolio update that its top five trades during the fourth quarter of 2022 included a new position in U.S. Bancorp (USB, Financial), a boost to its holding in Verizon Communications Inc. (VZ, Financial) and reductions to its stakes in State Street Corp. (STT, Financial), AbbVie Inc. (ABBV, Financial) and The Goldman Sachs Group Inc. (GS, Financial).
Managed by John Linehan, the fund seeks long-term capital appreciation by investing in the stock of large-cap companies that have a strong track record of paying dividends. The fund also looks for stocks that are undervalued based on intrinsic value.
As of December 2022, the fund’s $16.89 billion equity portfolio contains 111 stocks with a quarterly turnover of 3%. The top four sectors in terms of weight are financial services, health care, industrials and energy, representing 21.31%, 18.89%, 10.26% and 8.82% of the equity portfolio.
Investors should be aware that portfolio updates for mutual funds do not necessarily provide a complete picture of a guru’s holdings. The data is sourced from the quarterly updates on the website of the fund(s) in question. This usually consists of long equity positions in U.S. and foreign stocks. All numbers are as of the quarter’s end only; it is possible the guru may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
U.S. Bancorp
The fund invested in 1.82 million shares of U.S. Bancorp (USB, Financial), giving the position 0.47% equity portfolio weight. Shares averaged $42.80 during the fourth quarter; the stock is modestly undervalued based on its price-to-GF Value ratio of 0.86 as of Wednesday.
The Minneapolis-based bank has a GF Score of 79 out of 100 based on a rank of 7 out of 10 for growth and GF Value, a profitability rank of 6 out of 10, a momentum rank of 5 out of 10 and a financial strength rank of 4 out of 10.
U.S. Bancorp’s financial strength ranks 4 out of 10 on several warning signs, which include cash-to-debt and debt-to-equity ratios underperforming more than 65% of global competitors.
Other gurus with holdings in U.S. Bancorp include Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) and Chris Davis (Trades, Portfolio)’ Davis Selected Advisors.
Verizon
The fund purchased 2.19 million shares of Verizon (VZ, Financial), boosting the position by 365% and its equity portfolio by 0.51%. Shares averaged $37.68 during the fourth quarter.
GuruFocus’ GF Value line labeled the New York-based wireless company a possible value trap due to its low price-to-GF Value ratio of 0.69 as of Wednesday, a poor financial strength rank of 4 out of 10 and a low momentum rank of 1 out of 10.
Verizon’s low financial strength stems from several warning signs, which include a low Altman Z-score of 1.23 and a debt-to-equity ratio that underperforms more than 80% of global competitors.
Despite low financial strength and momentum, Verizon has a GF Score of 71 out of 100, driven by a GF Value rank of 10 out of 10, a profitability rank of 8 out of 10 and a growth rank of 5 out of 10.
Other gurus with holdings in Verizon include Diamond Hill Capital (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
State Street
The fund sold 1.43 million shares of State Street (STT, Financial), chopping 51.81% of the stake and 0.56% of its equity portfolio.
Shares of State Street averaged $73.64 during the fourth quarter; the stock is fairly valued based on its price-to-GF Value ratio of 1.10 as of Wednesday.
The Boston-based financial services company has a GF Score of 74 out of 100: Although the company has a momentum rank of 10 out of 10 and a rank of 6 out of 10 for profitability and growth, State Street’s financial strength ranks 4 out of 10 while its GF Value ranks 3 out of 10.
State Street’s financial strength ranks 4 out of 10 on the back of cash-to-debt and debt-to-equity ratios underperforming more than 60% of global competitors.
AbbVie
The fund sold 525,000 shares of AbbVie (ABBV, Financial), slicing 24.76% of the position and 0.46% of its equity portfolio.
Shares of AbbVie averaged $153.33 during the fourth quarter; the stock is modestly overvalued based on its price-to-GF Value ratio of 1.13.
The Chicago-based drug manufacturing company has a GF Score of 89 out of 100, driven by a rank of 10 out of 10 for profitability and growth despite momentum ranking 6 out of 10, financial strength ranking 4 out of 10 and GF Value ranking 3 out of 10.
Goldman Sachs
The fund sold 155,000 shares of Goldman Sachs (GS, Financial), trimming 20.39% of the position and 0.30% of its equity portfolio.
Shares of Goldman Sachs averaged $348.16 during the fourth quarter; the stock is modestly overvalued based on its price-to-GF Value ratio of 1.17 as of Wednesday.
The New York-based investment bank has a GF Score of 79 out of 100 based on a momentum rank of 9 out of 10, a growth rank of 8 out of 10, a profitability rank of 7 and out 10 and a rank of 3 out of 10 for financial strength and GF Value.
Goldman Sachs’ profitability ranks 7 out of 10 on the heels of a 3.5-star business predictability rank and a net profit margin that outperforms approximately 71% of global competitors.
