Wedgewood Partners Chief Investment Officer David Rolfe (Trades, Portfolio) disclosed four new holdings in his second-quarter portfolio, which was released last week.
The guru’s St. Louis-based firm approaches a potential investment with the mindset of a business owner, evaluating a handful of undervalued companies that have a dominant product or service, consistent earnings, revenue and dividend growth, are highly profitable and have strong management teams.
Based on these criteria, Rolfe established positions in Motorola Solutions Inc. (MSI, Financial), Alcon Inc. (ALC, Financial), Electronic Arts Inc. (EA, Financial) and Abiomed Inc. (ABMD, Financial) during the quarter.
Motorola Solutions
The guru invested in 210,883 shares of Motorola Solutions, allocating 2.98% of the equity portfolio to the position. The stock traded for an average price of $150.54 per share during the quarter.
The Chicago-based telecommunications company has a $29.04 billion market cap; its shares were trading around $177.5 on Wednesday with a price-earnings ratio of 29.69 and a price-sales ratio of 3.99.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Motorola’s financial strength 4.2 out of 10. In addition to adequate interest coverage, the high Altman Z-Score of 3.08 indicates the company is in good financial health.
The company’s profitability and growth scored a 5 out of 10 rating, driven by margins and returns that outperform a majority of competitors. Motorola is also supported by a strong Piotroski F-Score of 7, which implies operations are healthy, and 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 annum over a 10-year period.
Of the gurus invested in Motorola, Philippe Laffont (Trades, Portfolio) has the largest stake with 1.03% of outstanding shares. During the quarter, Mairs and Power (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) added to their holdings, while Dodge & Cox, Joel Greenblatt (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) reduced their positions. Jerome Dodson (Trades, Portfolio) is also a shareholder.
Alcon
Rolfe picked up 451,024 shares of Alcon, dedicating 2.37% of the equity portfolio to the holding. During the quarter, shares traded for an average price of $58.65.
Headquartered in Fort Worth, Texas, the company, which manufactures contact lenses and other eye care products, has a market cap of $29.23 billion; its shares were trading around $60.90 on Wednesday with a forward price-earnings ratio of 31.75, a price-book ratio of 1.39 and a price-sales ratio of 4.03.
According to GuruFocus, the stock has gained an estimated 4% since it was spun off of pharmaceutical giant Novartis AG (NVS, Financial) in April.
Alcon’s financial strength was rated 4.4 out of 10 by GuruFocus on the back of a low cash-debt ratio. In addition, the Altman Z-Score of 2.23 suggests the company is under some financial pressure.
The company’s profitability and growth did not fare as well, scoring a 1 out of 10 rating. Alcon is being weighed down by negative margins and returns that underperform a majority of industry peers.
With 0.98% of outstanding shares, PRIMECAP Management (Trades, Portfolio) has the largest position in Alcon. Other guru shareholders include the Vanguard Health Care Fund (Trades, Portfolio), Pioneer, Ken Fisher (Trades, Portfolio), Cohen, Dodge & Cox, Tweedy Browne (Trades, Portfolio), Kahn Brothers (Trades, Portfolio) and Ron Baron (Trades, Portfolio).
Electronic Arts
The investor opened a 272,032-share position in Electronic Arts, expanding the equity portfolio 2.33%. The stock traded for an average per-share price of $95.19 during the quarter.
The video game publisher, which is based in Redwood City, California, has a $27.32 billion market cap; its shares were trading around $93.99 on Wednesday with a price-earnings ratio of 13, a price-book ratio of 4.30 and a price-sales 5.60.
Based on the Peter Lynch chart, the stock appears to be undervalued.
Boosted by comfortable interest coverage, GuruFocus rated Electronic Arts’ financial strength 7.8 out of 10. In addition, the robust Altman Z-Score of 7.40 indicates the company is in good financial standing.
The company’s profitability and growth scored a 5 out of 10 rating, driven by strong margins and returns that outperform a majority of competitors. Electronic Arts also has a moderate Piotroski F-Score of 6, which suggests operations are stable, and a one-star business predictability rank.
Pioneer Investments has the largest stake in Electronic Arts with 0.91% of outstanding shares. During the quarter, Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Ray Dalio (Trades, Portfolio) also established positions, while Tom Gayner (Trades, Portfolio) increased his holding. Greenblatt, Louis Moore Bacon (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio), Laffont, Baron and PRIMECAP reduced their positions. Chris Davis (Trades, Portfolio) also holds the stock.
Abiomed
Rolfe purchased 1,000 shares of Abiomed, giving the holding 0.02% space in the equity portfolio. During the quarter, the stock traded for an average price of $265.27 per share.
The Danvers, Massachusetts-based company, which manufactures medical implant devices like the AbioCor artificial heart and Impella, has a market cap of $8.94 billion; its shares were trading around $195.57 on Wednesday with a price-earnings ratio of 35.23, a price-book ratio of 9.06 and a price-sales ratio of 11.40.
The Peter Lynch chart suggests the stock is overvalued.
Boosted by comfortable interest coverage and no long-term debt, Abiomed’s financial strength was rated 9.2 out of 10 by GuruFocus. In addition, the high Altman Z-Score of 45.77 indicates the company is in excellent financial shape.
The company’s profitability and growth scored a 6 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 7. Abiomed also has a one-star business predictability rank.
Of the gurus invested in Abiomed, PRIMECAP has the largest stake with 6.9% of outstanding shares. During the quarter, Simons’ firm, Frank Sands (Trades, Portfolio), Pioneer, Paul Tudor Jones (Trades, Portfolio) and Greenblatt added to their holdings, while Cohen trimmed his position.
Additional trades
During the quarter, Rolfe also added to his holdings of Fastenal Co. (FAST, Financial), Ross Stores Inc. (ROST, Financial), Alphabet Inc. (GOOG, Financial) and Annaly Capital Management Inc. (NLY, Financial).
The guru’s $1.18 billion equity portfolio, which is composed of 38 stocks, is largely invested in the technology, consumer cyclical and financial services sectors.
According to GuruFocus, Wedgwood posted a return of -4.01% in 2018, slightly outperforming the S&P 500 Index’s -4.38% return.
Disclosure: No positions.
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