Wedgewood Partners’ David Rolfe (Trades, Portfolio) acquired one new holding and sold another in the third quarter.
Rolfe is the chief investment officer at Wedgewood. The firm’s investment philosophy is established on the belief that significant long-term wealth can be created through investing as an “owner” in a company. It looks for a dominant product or service that is hard to compete with, has sustainable and consistent growth of revenue, earnings and dividends, is highly profitable and has a strong, shareholder-oriented management team.
The guru purchased 1,739,896 shares in TreeHouse Foods Inc. (THS, Financial) for an average price of $96.14 per share. The transaction had an impact of 3.2% on the portfolio.
TreeHouse manufactures consumer packaged foods and beverages. The Illinois-based company has a market cap of $3.7 billion with an enterprise value of $7.8 billion. It has a price-earnings (P/E) ratio of 38.4, a price-book (P/B) ratio of 1.3 and a price-sales (P/S) ratio of 0.6.
GuruFocus ranked the company’s financial strength 4 of 10. The Piotroski F-Score of 4 and Altman Z-Score of 1.9 indicate the company is stable, but has some minor financial stress. The return on invested capital (ROIC) underperforms the weighted average cost of capital (WACC), meaning the company will destroy value as it grows. The cash-debt ratio of 0.02 is below the industry median of 0.6.
GuruFocus ranked TreeHouse’s profitability and growth 6 of 10. It has an operating margin of 4.3% and a net margin of 1.6%. The return on equity (ROE) and return on assets (ROA) underperform 65% of other companies in the global packaged foods industry. In contrast, the return on capital (ROC) outperforms 50% of competitors.
With his purchase, Rolfe became the company’s largest shareholder among the gurus. He holds 3.1% of outstanding shares, which is 3.2% of his total assets managed. Paul Tudor Jones (Trades, Portfolio) and John Burbank (Trades, Portfolio) also established a position during the third quarter. In all, 9 gurus hold positions in the company.
The DCF Calculator gives the stock a fair value of $34.08; it was trading at $65.41 on Wednesday.
Rolfe sold out of Proctor & Gamble (PG, Financial). He sold 2,400 shares for an average price of $86.85 per share. The position was a new holding in the second quarter of this year.
The Ohio-based consumer goods company has a market cap of $223.4 billion with an enterprise value of $242.1 billion. It has a P/E of 22.4, a forward P/E of 21.5, a P/B of 3.9 and a P/S of 3.6.
GuruFocus ranked the company’s financial strength 6 of 10. The Piotroski F-Score of 6 and Altman Z-Score of 3.7 indicate the company is in stable financial condition. The ROIC outperforms the WACC, so the company is creating value as it grows. The cash-debt ratio of 0.5 is slightly below the industry median of 0.6.
GuruFocus ranked Proctor & Gamble’s profitability and growth 6 of 10. It has an operating margin of 20.6% and a net margin of 16.3%. The ROE and ROA outperform 80% and 77% of other companies in the global household and personal products industry. Similarly, the ROC outperforms 91% of competitors.
Donald Yacktman (Trades, Portfolio) is the company’s largest shareholder among the gurus. He holds 0.6% of outstanding shares, which is 12.5% of his total assets managed. Jones and John Hussman (Trades, Portfolio) also sold out of Proctor & Gamble during the quarter. In all, 30 gurus hold positions in the company.
The DCF Calculator gives the stock a fair value of $37.78; it was trading at $83.3 on Wednesday.
TreeHouse is one of three consumer packaged goods stocks in Rolfe’s portfolio. The other two are The Kraft Heinz Co. (KHC, Financial) and Mead Johnson Nutrition Co. (MJN, Financial).
Disclosure: I do not own stock in any companies mentioned in the article.
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