Jeremy Grantham (Trades, Portfolio)’s GMO LLC recently disclosed its 13F portfolio updates for the first quarter of 2023, which ended on March 31.
Grantham is a co-founder and member of the asset allocation team of Grantham, Mayo, Van Otterloo (GMO) & Co. LLC. Based in Boston, the asset management firm utilizes various long-term, value-based investment strategies that focus on risk management and diversification. Grantham is known for his success in consistently identifying and avoiding stock market bubbles, such as the Japanese market bubble in the late 1980s, the dot-com bubble in the '90s and credit markets in 2006.
During the quarter, GMO’s top trades included additions to Sunrun Inc. (RUN, Financial) and Alphabet Inc.’s voting shares (GOOGL, Financial) and reductions to U.S. Bancorp (USB, Financial) and American Express Co. (AXP, Financial).
Investors should be aware 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Sunrun
Grantham’s firm increased its stake in Sunrun (RUN, Financial) by 64.18% for a total holding of 11,514,410 shares. This added 0.46% to the equity portfolio at the quarter’s average share price of $23.33.
Based in San Francisco, Sunrun is the leading provider of residential solar installations and services in the U.S. It provides solar panels, batteries, installation, education and other solar power equipment and services through both rental and purchase agreements to residential homeowners in 22 U.S. states.
Sunrun’s revenue per share has grown at a decent pace in recent years as residential solar panels have become more popular and cost-efficient, though its earnings have struggled as high cost of goods sold combines with high operational expenses.
The GF Value chart rates the stock as a potential value trap as the share price decline has coincided with an earnings decline. However, a recovery in earnings could place it in the undervalued basket.
Alphabet
The firm also upped its stake in Alphabet’s voting shares (GOOGL, Financial) by 20.54% for a total position worth 4,558,467 shares, adding 0.41% to the equity portfolio at the quarter’s average share price of $95.94.
Based in Mountain View, California, Alphabet is a multinational technology conglomerate that was formed as part of a restructuring of Google in 2015, in which Alphabet became the parent company of Google and several former Google subsidiaries.
Due to its search engine leadership as well as other assets such as the data from its Google Maps app, Alphabet has considerable artificial intelligence tailwinds that it can tap into. Even if internal development fails, Alphabet can just buy its way to the latest technology thanks to its financial and legal strength. The GF Score rates the stock 99 out of 100, indicating solid outperformance potential based on a historical study by GuruFocus.
The GF Value chart rates Alphabet as modestly undervalued, though its price-earnings ratio of 27.78 is slightly elevated on a historical basis.
U.S. Bancorp
The firm reduced its stake in U.S. Bancorp (USB, Financial) by 28.61%, leaving a remaining holding of 6,810,756 shares. The trade shaved 0.64% off the equity portfolio. During the quarter, shares changed hands for an average price of $44.54.
U.S. Bancorp is a financial services holding company based in Minneapolis. It is the parent company of U.S. Bank, a bank with branches in 26 U.S. states that is focused on accelerating the shift of banking to digital products and services.
The company has been demonstrating solid top- and bottom-line growth ever since the financial crisis, which is a positive sign. The high dividend yield of 6.04% also serves to attract investors.
Worries about potential further bank collapses in the U.S. have hit bank stocks hard, and U.S. Bancorp is no exception. The GF Value chart rates the stock as significantly undervalued.
American Express
GMO slimmed its American Express (AXP, Financial) holding by 26.34% for a remaining position of 983,752 shares, taking 0.28% off the equity portfolio at the quarter’s average share price of $165.89.
American Express is a financial services company headquartered in New York City. It is one of the largest and most well-known providers of credit cards, charge cards, gift cards and similar financial payment products in the U.S. Unlike Mastercard (MA, Financial) and Visa (V, Financial), American Express is both a payment network and a card issuer.
The company has managed to decrease its debt in recent years, which is an encouraging development for the card issuer that should better position it for a recession. Nevertheless, the danger of customers going bankrupt in a weakening economy cannot be ignored.
The GF Value chart rates the stock as modestly undervalued as recent price declines are moving in the opposite direction of the rising fair value estimate.
See also
Other notable GMO trades for the quarter included additions to Darling Ingredients Inc. (DAR, Financial), Livent Corp. (LTHM, Financial) and Accenture PLC (ACN, Financial) and a reduction to AGCO Corp. (AGCO, Financial).
At the end of the quarter, the firm’s 13F portfolio consisted of holdings in 693 U.S.-listed common stocks valued at a total of $19.66 billion. The turnover for the period was 9%.
The top holding was Microsoft Corp. (MSFT, Financial) with 4.84% of the equity portfolio, followed by Meta Platforms Inc. (META, Financial) with 2.96% and UnitedHealth Group Inc. (UNH, Financial) with 2.71%.
The sectors with the highest weighting in the portfolio were technology, health care and financial services.
