During the third quarter, David Rolfe (Trades, Portfolio) of Wedgewood Partners initiated two new holdings in companies with recent IPOs and sold an oil and gas-related stock, according to data reported by GuruFocus Real Time Picks.
The fund declined 7.38% during the quarter, compared to the Standard & Poor's 500 and Russell 1000 Growth Index, which declined 6.44% and 5.29%. In the third quarter commentary, Rolfe and the fund reiterated its commitment to three energy holdings that have been held for the past 15 years: Core Labs (CLB, Financial), National Oilwell Varco (NOV, Financial) and Schlumberger (SLB, Financial).
“We are convicted that all three businesses are superior in adding value for customers and capturing it for shareholders, over a full boom-bust cycle, but concede their stock prices will follow oil's volatile moves in the shorter term,” Rolfe wrote.
Rolfe will also be a featured speaker at the 2016 GuruFocus Value Conference in Omaha, Neb., in April. Visit the conference website to learn more about the featured speakers, event information and registration details.
New buys
Rolfe purchased two new stocks during the quarter, the larger of which was 2,471,282 shares in The Kraft Heinz Co. (KHC, Financial) for an average of $75.49 per share. The combined company began trading in July, and reported in its third quarter results that net sales had increased 136% due to the merger.
The stock is down 2% since it began trading and is now priced at $71.23 at 32x earnings. In the third quarter commentary, Rolfe wrote that Kraft Heinz’s competitive advantage will be its new leadership and culture led by 3G Capital’s methods of recruiting “exceptional managerial talent.”
“We expect to see rapid profitability growth over the next few years as 3G Capital instills its highly disciplined culture of minimizing cost and expanding margins at the under-earning Kraft Foods Corp (along with further optimization at Heinz),” the fund wrote.
Rolfe also bought 5,214,323 shares in PayPal Holdings Inc. (PYPL, Financial) for an average price of $35.94 per share. The digital payments company spun off from eBay (EBAY, Financial) in July, after pressure from activist investor Carl Icahn (Trades, Portfolio) to split the businesses. The stock is down 2% since the IPO, trading at $36.09 per share.
Despite several start-ups competing in the payments industry, the fund wrote that all lack the low cost marketing exposure PayPal benefited from by being attached to eBay. Wedgewood calls PayPal a “cash machine” and expects it to leverage its leadership in mobile payments.
Sold out
Rolfe closed one position during the quarter, selling 478,947 shares of Now Inc. (DNOW, Financial) for an average of $32.74 per share. Over the past year, the stock declined 37% and is currently priced at $17.56. Now serves the oil and gas markets and distributes products such as pipe and tubing, valves, fittings and fasteners.
Now has posted a loss in each of the last three quarters due to low oil prices.
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