The T Rowe Price Equity Income Fund (Trades, Portfolio) disclosed this week its top five buys for the third quarter included new holdings in NextEra Energy Inc. (NEE, Financial) and AbbVie Inc. (ABBV, Financial) as well as three position boosts: General Electric Co. (GE, Financial), Phillip Morris International Inc. (PM, Financial) and Edison International (EIX, Financial).
Currently managed by John Linehan, the Baltimore-based fund invests in common stocks of established companies that are trading below fair value and expected to pay above-average dividends. Emphasis is placed on large-cap companies with a strong track record of dividend payments.
As of quarter-end, the fund’s $19.28 billion equity portfolio contains 109 stocks with a turnover ratio of 6%. The top three sectors in terms of portfolio weight are financial services, industrials and health care, with weights of 23.79%, 12.56% and 12.32%.
NextEra Energy
The fund purchased 890,000 shares of NextEra Energy, giving the position 1.08% weight in the equity portfolio. Shares averaged $216.39 during the quarter.
Juno Beach, Florida-based NextEra Energy operates Florida Power & Light, a regulated utility that distributes power to over 5 million customers in Florida. GuruFocus ranks the company’s profitability 7 out of 10 on several positive investing signs, which include operating margins that have increased approximately 1.40% per year on average over the past five years and net profit margins that are outperforming 81.25% of global competitors.
Despite strong profitability, NextEra Energy’s financial strength ranks a poor 3 out of 10 on the heels of interest coverage ratios and debt-to-equity ratios underperforming over 62% of global regulated utility companies. Additionally, the website warns that NextEra Energy’s long-term debt has increased approximately $12.8 billion over the past three years, a significant amount.
Other gurus with holdings in NextEra Energy include Pioneer Investments (Trades, Portfolio) and Robert Bruce (Trades, Portfolio)’s Bruce & Co.
AbbVie
The fund purchased 1.35 million shares of AbbVie, giving the position 0.53% weight in the equity portfolio. Shares averaged $68.61 during the quarter.
The North Chicago, Illinois-based company has strong exposure to immunology and oncology. The Abbott Laboratories (ABT, Financial) spinoff manufactures drugs like Humira, which represents approximately half of the company’s revenues.
GuruFocus ranks AbbVie’s profitability 9 out of 10 on several positive investing signs, which include a strong Piotroski F-score of 8 and operating margins that are outperforming 85.28% of global drug manufacturers. Additionally, the company’s 5.72% dividend yield is near a 10-year high of 6.3% and outperforms 95.40% of global competitors.
Gurus with large holdings in AbbVie include Pioneer Investments and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
General Electric
The fund added 10.4 million shares of General Electric, increasing the position 44.97% and the equity portfolio 0.48%. Shares averaged $9.43 during the quarter; according to GuruFocus estimates, the fund has an estimated gain of 24.84% on the stock.
The Boston-based industrial conglomerate operates seven businesses: power, oil and gas, renewable energy, lighting, aviation, health care and transportation. GuruFocus lists a few red flags for GE, including declining gross profit margins and operating margins.
Phillip Morris
The fund added 1.065 million shares of Phillip Morris, increasing the position 33.44% and the equity portfolio 0.42%. Shares averaged $79.16 during the quarter.
The New York-based tobacco company manufactures and sells cigarettes and other nicotine products. GuruFocus ranks Phillip Morris’ profitability 8 out of 10 on several positive investing signs, which include profit margins that outperform over 85% of global competitors.
Edison International
The fund added 1,025,237 shares of Edison International, increasing the position 42.99% and the equity portfolio 0.40%. Shares averaged $71.90 during the quarter.
The Rosemead, California-based company supplies power to over 5 million customers in Southern California. GuruFocus ranks Edison International’s profitability 6 out of 10: Operating margins are outperforming 63.07% of global competitors even though returns on equity are underperforming 88.83% of global regulated electric companies.
Disclosure: No positions.
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