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Sydnee Gatewood
Sydnee Gatewood
Articles (2456) 

David Rolfe Goes 2 for 2 in 2nd Quarter

Guru’s top buys include an ETF

Wedgewood Partners’ David Rolfe (Trades, Portfolio) disclosed he established two positions and exited two others when he released his second-quarter portfolio last week.

As Wedgewood’s chief investment officer, Rolfe invests in only a handful of undervalued companies that have a dominant product or service, have consistent earnings, revenue and dividend growth, are highly profitable and have strong management teams. The St. Louis-based firm approaches a potential investment with the mindset of a business owner.

During the quarter, the guru initiated positions in The Toronto-Dominion Bank (NYSE:TD) and the PIMCO Enhanced Short Maturity Active Exchange-Traded Fund (MINT). He sold out of Verisk Analytics Inc. (NASDAQ:VRSK) and his 8point3 Energy Partners LP (NASDAQ:CAFD) position was dissolved.

Toronto-Dominion Bank

Rolfe invested in 5,425 shares of Toronto-Dominion for an average price of $57.20 per share, allocating 0.02% of the equity portfolio to the holding.

The Canadian bank has a market cap of $109.88 billion; its shares were trading around $60.3 on Monday with a price-earnings ratio of 13.91, a price-book ratio of 2.06 and a price-sales ratio of 3.89.

The median price-book chart below shows the stock is trading above its historical average.

400585463.png

As a result of the company issuing approximately 1.1 billion Canadian dollars ($840.7 million) in new long-term debt over the last several years, GuruFocus rated Toronto-Dominion’s financial strength 4 out of 10. The company also has weak cash-to-debt and debt-to-equity ratios. Despite having good margins and returns, the bank’s profitability and growth scored a 3 out of 10 rating. The company also has a business predictability ranking of one out of five stars. According to GuruFocus, stocks with this rank see an average gain of 1.1% per year.

Of the gurus invested in the bank, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest stake with 0.16% of outstanding shares. Andreas Halvorsen (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates, Jeremy Grantham (Trades, Portfolio), Ken Fisher (Trades, Portfolio), David Dreman (Trades, Portfolio) and Murray Stahl (Trades, Portfolio) are also shareholders.

PIMCO Enhanced Short Maturity Active ETF

The guru picked up 2,780 units of the PIMCO exchange-traded fund for an average price of $101.51 per unit, giving it 0.01% space in the equity portfolio.

According to its website, the ETF invests in a broad range of high-quality, short-term instruments. It has a $9.9 billion market cap; it was trading around $101.54 per unit on Monday.

The ETF’s 14-day relative strength index is 55.9, which suggests it is neither overbought nor oversold.

Other gurus who have positions in the PIMCO ETF include Carl Icahn (Trades, Portfolio), Chase Coleman (Trades, Portfolio), Daniel Loeb (Trades, Portfolio) and Steven Cohen (Trades, Portfolio).

Verisk Analytics

The investor sold his 4,895 remaining shares of Verisk for an average price of $106.43 per share, impacting the equity portfolio by -0.02%. GuruFocus estimates he had gained 49% on the investment since the second quarter of 2012.

The data analytics and risk assessment company, which is headquartered in New Jersey, has a $19.37 billion market cap; its shares were trading around $117.61 on Monday with a price-earnings ratio of 32.42, a price-book ratio of 9.33 and a price-sales ratio of 8.61.

According to the Peter Lynch chart below, the stock is overpriced since it is trading higher than it fair value.

1164727139.png

Verisk’s financial strength was rated 6 out of 10 by GuruFocus as it has good interest coverage and a high Altman Z-Score. The company’s profitability and growth scored an 8 out of 10 rating. Although its operating margin is in decline, it still outperforms a majority of industry peers. In addition, it has a moderate Piotroski F-Score of 6, which suggests operations are stable, and a 4.5-star business predictability rank. GuruFocus says stocks with this rank see an average gain of 10.6% per year. The company also has consistent revenue and earnings growth.

In his first-quarter letter, Rolfe said the company has strayed from its “core competency of serving the Insurance Industry” in recent years in an attempt to “drive continued revenue and earnings growth.” While Verisk executed well in regard to insurance, he was less impressed with its efforts in energy, health care and financials, writing “the returns to date have not justified the balance sheet risk.”

With 1.54% of outstanding shares, Chuck Akre (Trades, Portfolio) is the company’s largest guru shareholder. Diamond Hill Capital (Trades, Portfolio), Ron Baron (Trades, Portfolio), Pioneer, Simons, Frank Sands (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Cohen, Caxton Associates (Trades, Portfolio), Stahl and Dalio also own the stock.

8point3 Energy

Rolfe’s 10,250-share holding of 8point3 Energy was dissolved after the company was bought by Swiss asset manager Capital Dynamics AG on June 19. The transaction had an impact of -0.01% on the equity portfolio.

According to the terms of the deal, shareholders of the San Jose, California-based renewable energy limited partnership, which was formed by First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR), received $12.48 per share.

Other trades

During the quarter, Rolfe also added to his Charles Schwab Corp. (NYSE:SCHW), Johnson & Johnson (NYSE:JNJ) and AT&T Inc. (NYSE:T) holdings. He also trimmed a number of positions, including Fastenal Co. (NASDAQ:FAST), Edwards Lifesciences Corp. (NYSE:EW), Ross Stores Inc. (ROST) and Apple Inc. (AAPL).

The guru’s $1.9 billion portfolio, which is composed of 34 holdings, is largely invested in the technology and financial services sectors. According to GuruFocus, Wedgewood slightly underperformed the S&P 500 in 2017 with a return of 20.42%. The index posted a 21.71% return.

Disclosure: No positions.

About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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