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James Li
James Li
Articles (791)  | Author's Website |

Chris Davis' Top 6 Buys in 1st Quarter

Top buys include two of Buffett’s major bank holdings

Chris Davis (Trades, Portfolio), manager of the Davis Financial Fund, disclosed this week his top six buys for the first quarter were Bank of America Corp. (NYSE:BAC), Capital One Financial Corp. (NYSE:COF), Wells Fargo & Co. (NYSE:WFC), Quest Diagnostics Inc. (NYSE:DGX), Applied Materials Inc. (NASDAQ:AMAT) and Apache Corp. (NYSE:APA).

Managing a portfolio of 136 stocks, Davis seeks durable, well-managed businesses that can be purchased at value prices and held for the long term. The guru said in his 2019 annual review letter that despite a -15.97% return in 2018, the Davis Financial Fund has compounded shareholder wealth at over 11% per year since the fund’s 1991 inception, outpacing both the Standard & Poor’s 500 index and the S&P 500 Financials index.

Top buys include three banks, including a new holding in Buffett’s Bank of America

Davis highlighted in his review letter that financial stocks are now priced “at their most attractive level” in several years relative to less volatile sectors like consumer products, health care and utilities following share price markdowns in financial stocks as investors started getting nervous about the economy. While investors started flocking to the “defensive” sectors, they also dumped shares of banks and other financial companies “perceived as risky” just because such companies tumbled during past recessions like the 2008 financial crisis.

The manager purchased 1,508,920 shares of Bank of America, Warren Buffett (Trades, Portfolio)’s second-largest holding and top bank holding as of the latest portfolio date. Shares of the Charlotte, North Carolina-based bank averaged $28.23 during the quarter; Davis dedicated 0.20% of his equity portfolio to the position.

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GuruFocus ranks Bank of America’s financial strength 4 out of 10 primarily due to a cash-debt ratio and a debt-to-equity ratio that underperform over 61% of global competitors. Despite this, the company's net margin of 31.32% is outperforming 67.66% of global banks.

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Other gurus with large holdings in Bank of America include Dodge & Cox, PRIMECAP Management (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).

Capital One

Davis added 506,028 shares of Capital One, increasing the holding 3.81% and the equity portfolio 0.20%. Shares of the McLean, Virginia-based company averaged $81.25 during the quarter.

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Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial customers through a wide variety of delivery channels. GuruFocus ranks the company’s financial strength 4 out of 10 primarily due to a cash-debt ratio of 0.35, which underperforms 67.71% of global competitors, and an equity-to-asset ratio of 0.14, which underperforms 86.20% of global competitors.

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Wells Fargo

Davis added 564,936 shares of Wells Fargo, Buffett’s third-largest holding and second-largest bank holding. Shares of the San Francisco-based bank averaged $28.23 during the quarter. With this transaction, the manager increased the holding 2.09% and his equity portfolio 0.13%.

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GuruFocus ranks Wells Fargo’s financial strength 4 out of 10 primarily due to a cash-debt ratio and a debt-to-equity ratio that underperforms over 68% of global competitors.

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Quest Diagnostics

Davis added 2,840,669 shares of Quest Diagnostics, increasing the holding 355.8% and his equity portfolio 1.26%. Shares averaged $86.62 during the quarter.

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The Secaucus, New Jersey-based company generates the majority of its revenue through clinical testing, anatomic pathology, esoteric testing and substance abuse testing. GuruFocus ranks the company’s profitability 7 out of 10 on several positive signs, which include expanding profit margins and a return on equity that outperforms 85.12% of global competitors. Despite this, Quest Dynamics’ three-year revenue growth rate of 0.20% underperforms 57.69% of global medial diagnostics and research companies.

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Applied Materials

Davis added 2,301,511 shares of Applied Materials, increasing the holding 17.42% and his equity portfolio 0.45%. Shares averaged $37.87 during the quarter.

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The Santa Clara, California-based company supplies various semiconductor manufacturing equipment used in the chemical and physical vapor deposition steps of the chip fabrication process. GuruFocus ranks the company’s profitability 8 out of 10 on several positive indicators, which include expanding profit margins, returns near a 10-year high and a three-year revenue growth rate that outperforms 83.87% of global competitors.

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Apache

Davis added 1,269,260 shares of Apache, increasing the holding 5.55% and his equity portfolio 0.22%. Shares averaged $32.49 during the quarter.

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The Houston-based energy exploration and production company’s asset base includes conventional and unconventional resource plays throughout North America, Egypt and the U.K. GuruFocus ranks Apache’s profitability 5 out of 10: The company’s revenue has declined over the past five years, while its three-year revenue growth rate of 4.10% outperforms just 56.30% of global competitors. Despite this, Apache’s operating margin of 23.54% outperforms 67.83% of global competitors.

Disclosure: No positions.

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About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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