The Parnassus Value Equity Fund (Trades, Portfolio) released its fourth-quarter portfolio late last week, revealing potential value opportunities for the new year as inflation, increasing interest rates and other economic headwinds continue to affect the market.
Part of Jerome Dodson (Trades, Portfolio)’s San Francisco-based Parnassus Investments, the fund, which recently changed its name from the Parnassus Endeavor Fund (Trades, Portfolio), avoids investing in fossil fuel-related stocks. Rather, it prefers companies that have exemplary work environments and are known for being socially and environmentally responsible. With the goal of capital appreciation, the portfolio managers invest in discounted large-cap companies that have strong competitive advantages, relevant products and quality management teams.
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.
Based on its criteria, NPORT-P filings show the fund established five new positions during the three months ended Dec. 31, sold out of four stocks and added to or trimmed a handful of other existing investments. Among its most notable trades were new holdings in Target Corp. (TGT, Financial), Align Technology Inc. (ALGN, Financial) and Citigroup Inc. (C, Financial) and the divestment of Becton, Dickinson and Co. (BDX, Financial) and Discover Financial Services (DFS, Financial).
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.
Target
The fund invested in 630,045 shares of Target (TGT, Financial), allocating 2.07% of the equity portfolio to the position. The stock traded for an average price of $156.89 per share during the quarter.
The popular Minneapolis-based retailer, which sells everything from groceries to home goods and clothing, has a $73.36 billion market cap; its shares were trading around $159.38 on Thursday with a price-earnings ratio of 21.83, a price-book ratio of 6.66 and a price-sales ratio of 0.68.
The GF Value Line suggests the stock is significantly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
The GF Score of 91 out of 100 indicates the company has high outperformance potential on the back of strong ratings for profitability, growth, GF Value and momentum as well as a moderate financial strength rank.
Of the gurus invested in Target, Ken Fisher (Trades, Portfolio) has the largest stake with 1.04% of its outstanding shares. Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and the Smead Value Fund (Trades, Portfolio) also have sizeable holdings in the stock.
Align Technology
Parnassus picked up 367,474 shares of Align Technology (ALGN, Financial), dedicating 1.71% of the equity portfolio to the holding. Shares traded for an average price of $200.17 each during the quarter.
Headquartered in San Jose, California, the orthodontics company, which is known for its Invisalign braces, has a market cap of $18.34 billion; its shares were trading around $234.79 on Thursday with a price-earnings ratio of 36.29, a price-book ratio of 4.96 and a price-sales ratio of 4.80.
According to the GF Value Line, the stock is significantly undervalued currently.
At 92, the GF Score implies the company has high outperformance potential. While it received strong ratings for three of the criteria, the momentum and GF Value ranks were more moderate.
With a 2.96% stake, Frank Sands (Trades, Portfolio) is Align’s largest guru shareholder. Other top guru investors include the Vanguard Health Care Fund (Trades, Portfolio), Fisher, Dalio’s firm, Dodson’s Parnassus Fund and Joel Greenblatt (Trades, Portfolio).
Citigroup
The fund entered a 1.5 million-share stake in Citigroup (C, Financial), giving it 1.50% space in the equity portfolio. During the quarter, the stock traded for an average per-share price of $45.43.
The New York-based bank has a $94.32 billion market cap; its shares were trading around $48.70 on Thursday with a price-earnings ratio of 8.34, a price-book ratio of 0.52 and a price-sales ratio of 1.28.
Based on the GF Value Line, the stock appears to be modestly undervalued currently.
The GF Score of 71 means the company is likely to have average performance going forward. It raked in high ratings for GF Value and momentum, middling marks for profitability and growth and a low financial strength rank.
Warren Buffett (Trades, Portfolio) is Citigroup’s largest guru shareholder with a 2.85% stake. Hotchkis & Wiley, Richard Pzena (Trades, Portfolio), ValueAct Capital (Trades, Portfolio), Bill Nygren (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, PRIMECAP Management (Trades, Portfolio) and several other gurus also have notable positions in the stock.
Becton, Dickinson
In the largest transaction of the quarter, the Value Equity Fund dumped its 419,352 remaining shares of Becton, Dickinson (BDX, Financial), impacting the equity portfolio by -2.34%. The stock traded for an average price of $236.05 per share during the quarter.
GuruFocus estimates the fund lost 4.16% on the investment over its lifetime.
Commonly known as BD, the health care company headquartered in Franklin Lakes, New Jersey, which manufactures medical devices, instrument systems and reagents, has a market cap of $72.07 billion; its shares were trading around $253.52 on Thursday with a price-earnings ratio of 43.12, a price-book ratio of 2.84 and a price-sales ratio of 3.72.
The GF Value Line suggests the stock is fairly valued currently.
The company has good outperformance potential based on its GF Score of 87, driven by high ratings for profitability, growth and momentum and middling marks for financial strength and GF Value.
Of the gurus invested in BD, Al Gore (Trades, Portfolio)’s Generation Investment has the largest stake with 1.12% of its outstanding shares. First Eagle Investment (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio) and the T Rowe Price Equity Income Fund (Trades, Portfolio) also have large holdings in the stock.
Discover Financial
The fund sold its 800,869 remaining shares of Discover Financial (DFS, Financial), which had a -1.82% impact on the equity portfolio. During the quarter, shares traded for an average price of $100.63 each.
GuruFocus data shows the fund gained 129.98% on the investment.
The Chicago-based financial services company, which provides banking and payment services via its credit cards, has a $27.44 billion market cap; its shares were trading around $100.44 on Thursday with a price-earnings ratio of 6.54, a price-book ratio of 2.07 and a price-sales ratio of 2.25.
According to the GF Value Line, the stock is modestly undervalued currently.
Generating a GF Score of 85, the company has good outperformance potential. Although it received high ratings for four of the criteria, financial strength was low.
With a 1.08% stake, PRIMECAP Management (Trades, Portfolio) is the company’s largest guru shareholder. Jeremy Grantham (Trades, Portfolio), Diamond Hill, Steven Cohen (Trades, Portfolio), Keeley-Teton Advisors, LLC (Trades, Portfolio), Dalio’s firm and Simons’ firm also have positions in Discover.
Additional trades and portfolio performance
During the three months ended Dec. 31, the Value Equity Fund also established positions in International Flavors & Fragrances Inc. (IFF, Financial) and Applied Materials Inc. (AMAT, Financial), exited Hanesbrands Inc. (HBI, Financial), cut back the Merck & Co. Inc. (MRK, Financial) stake and boosted its holding of Accenture PLC (ACN, Financial).
Slightly over 40% of Parnassus’ $4.54 billion equity portfolio, which is composed of 46 stocks, is invested in the financial services and health care sectors.
The fund posted a return of -13.81% in 2022, topping the S&P 500 Index’s -19.44% return. It underperformed the Russell 1000 Value Index, however, which returned -7.54%.
