Spiros Segalas (Trades, Portfolio), the manager of the Harbor Capital Appreciation Fund, released his second-quarter portfolio earlier this week, listing nine new positions.
Part of Chicago-based Harbor Funds, the guru’s fund primarily invests in companies with market caps of at least $1 billion at the time of purchase. He focuses on companies that have strong balance sheets and earnings performance, good sales momentum and growth outlook, a history of high profitability, a unique market position and a capable, committed management team.
Based on these criteria, Segalas’ top five new buys for the quarter were Qualcomm Inc. (QCOM, Financial), Constellation Brands Inc. (STZ, Financial), Lowe’s Companies Inc. (LOW, Financial), Airbus SE (XPAR:AIR, Financial) and Danaher Corp. (DHR, Financial).
Qualcomm
After selling out of Qualcomm in the fourth quarter of 2017, Segalas invested in a new 4.3 million-share stake. The trade had an impact of 1.19% on the equity portfolio. The stock traded for an average price of $59.31 per share during the quarter.
The San Diego-based semiconductor company has a $92.26 billion market cap; its shares were trading around $75.02 on Wednesday with a price-earnings ratio of 40.15, a price-book ratio of 23.89 and a price-sales ratio of 4.77.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Qualcomm’s financial strength 5 out of 10. As a result of issuing approximately $4.5 billion in new long-term debt over the last three years, the company has poor interest coverage. In addition, the Altman Z-Score of 3.04 indicates the company is under minor fiscal pressure.
The company’s profitability and growth fared better, scoring a 7 out of 10 rating. Although the operating margin is in decline and Qualcomm has poor earnings quality, it is supported by a return on equity that outperforms over 80% of competitors and a moderate Piotroski F-Score of 5, which suggests business conditions are stable. It also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per year over a 10-year period.
Of the gurus invested in Qualcomm, PRIMECAP Management (Trades, Portfolio) has the largest position with 2.03% of outstanding shares. Other top guru shareholders include Barrow, Hanley, Mewhinney & Strauss, the T Rowe Price Equity Income Fund (Trades, Portfolio), the Parnassus Endeavor Fund (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Stanley Druckenmiller (Trades, Portfolio) and Ken Fisher (Trades, Portfolio).
Constellation Brands
Having previously exited a position in Constellation Brands in the third quarter of 2018, the guru picked up 1.56 million shares, dedicating 1.05% of the equity portfolio to the stake. During the quarter, shares traded for an average price of $179.45.
The producer and marketer of beer, wine and spirits, which is headquartered in New York, has a market cap of $37.96 billion; its shares were trading around $198.98 on Wednesday with a price-earnings ratio of 15.84, a price-book ratio of 3.11 and a price-sales ratio of 5.07.
According to the Peter Lynch chart, the stock is trading near its fair value.
Constellation Brands’ financial strength was rated 5.1 out of 10 by GuruFocus. Although the company has issued approximately $5.3 billion in new long-term debt over the last three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 2.73, however, suggests the company is under some fiscal stress.
The company’s profitability and growth scored a 7 out of 10 rating, driven by operating margin expansion, strong returns that outperform industry peers and a moderate Piotroski F-Score of 4. Constellation also has a 3.5-star business predictability rank, which is on watch despite the company recording consistent earnings and revenue growth. GuruFocus says companies with this rank typically see their stocks gain an average of 9.3% per year.
With 2.58% of outstanding shares, Steve Mandel (Trades, Portfolio) is the company’s largest guru shareholder. Other top investors include Bill Nygren (Trades, Portfolio), Daniel Loeb (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Ray Dalio (Trades, Portfolio), PRIMECAP, Jim Simons' (Trades, Portfolio) Renaissance Technologies, Lee Ainslie (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Leucadia National (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Ron Baron (Trades, Portfolio).
Lowe’s Companies
The investor established a 2.7 million-share stake in Lowe’s Companies, allocating 0.97% of the equity portfolio to the holding. During the quarter, the stock traded for an average price of $106.43 per share.
The North Carolina-based home improvement retailer has an $82.10 billion market cap; its shares were trading around $104.14 on Wednesday with a price-earnings ratio of 35.91, a price-book ratio of 25.83 and a price-sales ratio of 1.18.
Based on the Peter Lynch chart, the stock appears to be overvalued.
GuruFocus rated Lowe’s financial strength 5.5 out of 10. In addition to sufficient interest coverage, the Altman Z-Score of 3.34 indicates the company is in good fiscal health.
Despite being weighed down by a declining operating margin, the company’s profitability and growth was rated 8 out of 10. Lowe’s is supported by strong margins that outperform at least half of competitors, steady earnings and revenue growth and a moderate Piotroski F-Score of 6. The five-star business predictability rank is on watch, however. According to GuruFocus, companies with this coveted rank typically see their stocks gain an average of 12.1% per year.
Investment firm Barrow, Hanley, Mewhinney & Strauss is Lowe’s largest shareholder among the gurus with 1.84% of outstanding shares. Other top investors include Bill Ackman (Trades, Portfolio), Simons’ firm, Ainslie, Cohen, Larry Robbins (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Pioneer, Third Avenue Management (Trades, Portfolio) and Baron.
Airbus
Segalas purchased 1.8 million shares of Airbus, giving the position 0.80% space in the equity portfolio. The stock traded for an average per-share price of 114.11 euros ($128.34) during the quarter.
The French aircraft manufacturer has a market cap of 96.48 billion euros; its shares closed at 124.1 euros on Tuesday with a price-earnings ratio of 34.48, a price-book ratio of 10.90 and a price-sales ratio of 1.48.
The Peter Lynch chart suggests the stock is overvalued.
Airbus’ financial strength was rated 5.7 out of 10. Although the company has adequate interest coverage, the Altman Z-Score of 1.27 warns it is at risk of bankruptcy.
The company’s profitability and growth scored a 6 out of 10 rating. Although the margins are weak, the return on equity outperforms a majority of industry peers. Airbus is also supported by a moderate Piotroski F-Score of 6 and consistent earnings and revenue growth. It has a three-star business predictability rank, which, according to GuruFocus, means it sees its stock gain an average of 8.2% per year.
Of the gurus invested in Airbus, PRIMECAP has the largest stake with 2.20% of outstanding shares. Charles de Vaulx (Trades, Portfolio) and the IVA Interntional Fund also have positions in the stock.
Danaher
The guru bought 1.87 million shares of Danaher, expanding the equity portfolio 0.79%. Shares traded for an average price of $124 during the quarter.
The health care-focused industrial conglomerate, which is headquartered in Washington, D.C., has a $101.87 billion market cap; its shares were trading around $142.29 on Wednesday with a price-earnings ratio of 42.22, a price-book ratio of 3.43 and a price-sales ratio of 5.08.
According to the Peter Lynch chart, the stock is overvalued.
Boosted by comfortable interest coverage, GuruFocus rated Danaher’s financial strength 6.9 out of 10. In addition, the robust Altman Z-Score of 4.44 suggests the company is in good fiscal standing.
The company’s profitability and growth fared even better with an 8 out of 10 rating. In addition to operating margin expansion, Danaher is supported by steady earnings and revenue growth, a return on capital that outperforms competitors and a moderate Piotroski F-Score of 6. It also has a 2.5-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 7.3% per year.
With 0.67% of outstanding shares, the Vanguard Healch Care Fund is the company’s largest guru shareholder. Other top guru investors are Dodge & Cox, Loeb, Pioneer, Chuck Akre (Trades, Portfolio), the MS Global Franchise Fund (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), the Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio), Anold Van Den Berg, Greenblatt and Jeremy Grantham (Trades, Portfolio).
Additional trades
During the quarter, Segalas also established holdings in Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial), Sage Therapeutics Inc. (SAGE, Financial), Guardant Health Inc. (GH, Financial) and Zoom Video Communications Inc. (ZM, Financial).
The guru’s $31.36 billion equity portfolio, which is composed of 56 stocks, is largely invested in the technology and consumer cyclical sectors. According to its fact sheet, the Harbor Capital Appreciation Fund has returned 21.11% year to date, outperforming the S&P 500 Index’s 18.54% return.
Disclosure: No positions.
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