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Sydnee Gatewood
Sydnee Gatewood
Articles (759) 

The Top 5 Buys of Jeremy Grantham’s GMO in the 1st Quarter

Firm’s largest new position is Carvana

Investment firm Grantham, Mayo, Van Otterloo & Co., which was co-founded by renowned investor Jeremy Grantham (Trades, Portfolio) in 1977, released its first-quarter portfolio earlier this week, listing 251 new positions.

With the goal of delivering good risk-adjusted returns to clients, the Boston-based firm said on its website that it takes a long-term value approach to identify investment opportunities across multiple asset classes.

Based on these criteria, GMO’s top five new buys for the quarter were Carvana Co. (NYSE:CVNA), SunTrust Banks Inc. (NYSE:STI), L3 Technologies Inc. (NYSE:LLL), Worldpay Inc. (NYSE:WP) and First Data Corp. (NYSE:FDC).

Carvana

The firm invested in 1.11 million shares of Carvana, dedicating 0.47% of the equity portfolio to the stake. The stock traded for an average price of $41.74 per share during the quarter.

The Tempe, Arizona-based e-commerce company, which operates an online platform for buying used cars, has a $9.88 billion market cap; its shares were trading around $67.87 on Thursday with a price-book ratio of 51.81 and a price-sales ratio of 1.03.

The median price-sales chart shows the stock is trading above its historical average, suggesting it is overpriced.

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GuruFocus rated Carvana’s financial strength 5 out of 10. Despite issuing approximately $788.51 million in new long-term debt over the last three years, the Altman Z-Score of 6.18 indicates the company is in good financial standing.

The company’s profitability and growth did not fare as well, scoring a 3 out of 10 rating. In addition to negative margins and returns that are underperforming a majority of competitors, Carvana is hurt by a low Piotroski F-Score of 3, which implies operating conditions are weak, and a Sloan ratio that suggests it has poor earnings quality.

With the purchase of 0.76% of outstanding shares, Grantham’s firm is now the company’s largest guru shareholder. Steven Cohen (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) also own the stock.

SunTrust Banks

Having sold out of SunTrust in the first quarter of 2018, the investment firm established a new 1.07 million-share stake. The trade had an impact of 0.46% on the equity portfolio. During the quarter, the stock traded for an average price of $61.07.

The bank, which is headquartered in Atlanta, has a market cap of $27.55 billion; its shares were trading around $61.95 on Thursday with a price-earnings ratio of 10.91, a price-book ratio of 1.21 and a price-sales ratio of 3.05.

According to the Peter Lynch chart, the stock is undervalued.

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As a result of issuing approximately $9.6 billion in new long-term debt over the last three years, SunTrust’s financial strength was rated 3 out of 10 by GuruFocus.

Despite having margins and returns that outperform industry peers, the company’s profitability and growth scored a 4 out of 10 rating. The company also has a business predictability rank of one out of five stars. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per year.

GMO is now the company’s largest guru shareholder with 0.24% of outstanding shares. Other top guru investors include Pioneer Investments (Trades, Portfolio), Dodge & Cox, Cohen, George Soros (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and Gabelli.

L3 Technologies

GMO picked up 295,439 shares of L3 Technologies, allocating 0.44% of the equity portfolio to the holding. The shares traded for an average price of $197.70 during the quarter. The firm previously exited a position in the stock in the third quarter of 2013.

The New York-based aerospace and defense company, which makes command and control, communications, intelligence surveillance and reconnaissance products, has a $19 billion market cap; its shares were trading around $238.34 on Thursday with a price-earnings ratio of 18.71, a price-book ratio of 3.16 and a price-sales ratio of 1.80.

Based on the Peter Lynch chart, the stock appears to be overvalued.

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GuruFocus rated L3’s financial strength 6 out of 10. Boosted by adequate interest coverage, the Altman Z-Score of 3.33 suggests it is in good fiscal health.

The company’s profitability and growth scored a 7 out of 10 rating, driven by operating margin expansion, strong returns that outperform competitors and a high Piotroski F-Score of 7, which indicates business conditions are healthy. L3 also has a one-star business predictability rank.

Of the gurus invested in L3, Grantham’s firm now has the largest position with 0.37% of outstanding shares. Richard Pzena (Trades, Portfolio), Jim Simons' (Trades, Portfolio) Renaissance Technologies, Pioneer, Greenblatt, Lee Ainslie (Trades, Portfolio), Soros, Gabelli and Richard Snow (Trades, Portfolio) are also shareholders.

Worldpay

The firm purchased 376,962 shares of Worldpay, giving it 0.31% space in the equity portfolio. During the quarter, shares traded for an average price of $90.32.

The British payment processing company has a market cap of $37.51 billion; its shares were trading around $120.62 on Thursday with a price-earnings ratio of 251.19, a price-book ratio of 3.45 and a price-sales ratio of 9.07.

The Peter Lynch chart suggests the stock is overvalued.

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Worldpay’s financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing $2.2 billion in new long-term debt over the last three years, the company has poor interest coverage. In addition, the Altman Z-Score of 1.54 warns it is in danger of bankruptcy.

The company’s profitability and growth fared much better, scoring an 8 out of 10 rating on a high Piotroski F-Score of 7. While the operating margin is in decline, it still outperforms 64% of industry peers. Worldpay’s returns, however, are underperforming competitors. The company has also recorded a decline in revenue per share over the last three years.

With 1.19% of outstanding shares, Diamond Hill Capital (Trades, Portfolio) is the company’s largest guru shareholder. Other gurus with positions in the stock include Daniel Loeb (Trades, Portfolio), Ron Baron (Trades, Portfolio), Cohen, Larry Robbins (Trades, Portfolio), Pioneer, Soros, Louis Moore Bacon (Trades, Portfolio), Stanley Druckenmiller (Trades, Portfolio), Greenblatt, Dalio and Gabelli.

First Data

GMO bought 1.6 million shares of First Data, expanding the equity portfolio 0.30%. The stock traded for an average price of $23.66 per share during the quarter.

The Atlanta-based financial services company, which provides payment and transaction services as well as credit solutions, has a $24.53 billion market cap; its shares were trading around $25.95 on Thursday with a price-earnings ratio of 23.20, a price-book ratio of 5.74 and a price-sales ratio of 2.64.

According to the Peter Lynch chart, the stock is overvalued.

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Weighed down by poor interest coverage and a decline in revenue per share over the last five years, First Data’s financial strength was rated 4 out of 10 by GuruFocus. The Altman Z-Score of 0.45 warns the company is at risk of going bankrupt.

The company’s profitability and growth scored a 5 out of 10 rating, boosted by operating margin expansion and strong returns that outperform industry peers. First Data is also supported by a moderate Piotroski F-Score of 5, which suggests operations are stable, and a one-star business predictability rank.

Robbins has the largest stake in First Data with 1.54% of outstanding shares. Leon Cooperman (Trades, Portfolio), NWQ Managers (Trades, Portfolio), John Paulson (Trades, Portfolio), Soros, Pioneer, Cohen, Gabelli, Simons’ firm and Diamond Hill also hold the stock.

Additional trades

Other new additions GMO made to the portfolio during the quarter included iShares Trust MSCI Saudi Arabia (KSA), Fulton Financial Corp. (NASDAQ:FULT), CNO Financial Group Inc. (NYSE:CNO), Portland General Electric CO. (NYSE:POR) and TCF Financial Corp. (NYSE:TCF).

The firm’s $13.9 billion equity portfolio, which is composed of 696 stocks, is heavily invested in the technology sector, followed by smaller holdings of the financial services, health care and consumer cyclical sectors.

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am an editorial assistant 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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