The Parnassus Endeavor Fund (Trades, Portfolio) released its third-quarter portfolio earlier this week, listing four new holdings.
As part of Jerome Dodson (Trades, Portfolio)’s San Francisco-based firm, the fund avoids fossil fuel-related stocks. Rather, it concentrates on companies that have exemplary work environments and are socially and environmentally responsible. With the goal of capital appreciation, the fund invests in discounted large-cap companies that have strong competitive advantages, relevant products or services and quality management teams.
Based on these criteria, the Endeavor Fund established positions in Arista Networks Inc. (ANET, Financial), W.W. Grainger Inc. (GWW, Financial), Agilent Technologies Inc. (A, Financial) and Cisco Systems Inc. (CSCO, Financial).
Arista Networks
The fund invested in 276,201 shares of Arista Networks, dedicating 1.87% of the equity portfolio to the position. The stock traded for an average price of $247.64 per share during the quarter.
The Santa Clara, California-based company, which provides data center network equipment and software-driven cloud networking solutions, has an $18.32 billion market cap; its shares were trading around $241.34 on Thursday with a price-earnings ratio of 26.62, a price-book ratio of 7.7 and a price-sales ratio of 8.21.
The Peter Lynch chart below shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Arista’s financial strength 9 out of 10, driven by comfortable interest coverage and a high cash-debt ratio of 25.17. In addition, the robust Altman Z-Score of 14.95 indicates the company is in good financial standing.
The company’s profitability and growth scored an 8 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 4, which implies business conditions are stable.
Of the gurus invested in Arista Networks, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest holding with 0.64% of outstanding shares. Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Ruane Cunniff (Trades, Portfolio) are also shareholders.
W.W. Grainger
Parnassus picked up 180,000 shares of W.W. Grainger, allocating 1.51% of the equity portfolio to the holding. Shares traded for an average price of $277.84 during the quarter.
The industrial products distributor, which is headquartered in Lake Forest, Illinois, has a market cap of $16.80 billion; its shares were trading around $307.86 on Thursday with a price-earnings ratio of 21.01, a price-book ratio of 8.94 and a price-sales ratio of 1.53.
According to the Peter Lynch chart, the stock is overvalued.
W.W. Grainger’s financial strength was rated 6 out of 10 by GuruFocus. While the cash-debt ratio of 0.14 is low, the company still has adequate interest coverage. In addition, the Altman Z-Score of 7.5 suggests the company is in good financial health.
The company’s profitability and growth fared a bit better, scoring a 9 out of 10 rating. Although the operating margin is contracting, it still outperforms a majority of industry peers. W.W. Grainger also has strong margins and a high Piotrsoki F-Score of 8, which indicates business conditions are healthy. Due to consistent revenue and earnings growth over the past several years, it has a perfect business predictability rank of five out of five stars. GuruFocus says companies with this rank typically see their stocks gain an average of 12.1% per annum over a 10-year period.
With its purchase of 0.33% of the company’s outstanding shares, the Endeavor Fund became the largest guru shareholder. Simons’ firm, Pioneer, Greenblatt, Jones and Steven Cohen (Trades, Portfolio) also own the stock.
Agilent Technologies
The Endeavor Fund entered a 600,000-share holding of Agilent Technologies, giving it 1.30% weight in the equity portfolio. The stock traded for an average per-share price of $72.20 during the quarter.
The Santa Clara, California-based manufacturer of analytical laboratory instruments has a $23.33 billion market cap; its shares were trading around $75.68 on Thursday with a price-earnings ratio of 22.47, a price-book ratio of 5.01 and a price-sales ratio of 4.74.
Based on the Peter Lynch chart, the stock appears to be overvalued.
GuruFocus rated Agilent’s financial strength 7 out of 10. In addition to sufficient interest coverage, the Altman Z-Score of 4.81 indicates the company is in good financial shape.
The company’s profitability and growth scored an 8 out of 10 rating, driven by operating margin expansion, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 8. Agilent also has a one-star business predictability rank. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per year.
PRIMECAP is the company’s largest guru shareholder with a 1.42% stake. Other guru investors include Simons’ firm, the Vanguard Health Care Fund (Trades, Portfolio), Pioneer, the Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Ron Baron (Trades, Portfolio), Jones, Caxton Associates (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Cohen.
Cisco Systems
The fund’s final new purchase for the quarter was 700,000 shares of Cisco Systems. The trade had an impact of 0.98% on the equity portfolio. During the quarter, the stock traded for an average price of $51.96 per share.
Headquartered in San Jose, California, the company, which manufactures and sells networking hardware, telecommunications equipment and other technology-related products, has a market cap of $198.64 billion; its shares were trading around $47.11 on Thursday with a price-earnings ratio of 18.06, a price-book ratio of 5.99 and a price-sales ratio of 4.02.
The Peter Lynch chart suggests the stock is slightly overvalued.
Cisco’s financial strength was rated 6 out of 10 by GuruFocus on the back of a moderate cash-debt ratio of 1.36 and adequate interest coverage. In addition, the Altman Z-Score of 3.02 indicates the company is in good standing financially.
The company’s profitability and growth fared much better, scoring a perfect 10 out of 10 rating. In addition to operating margin expansion, Cisco is supported by strong returns that outperform a majority of industry peers, a high Piotroski F-Score of 8 and steady earnings and revenue growth. It also has a 4.5-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 10.6% per year.
Of the many gurus invested in Cisco, Fisher has the largest stake with 0.69% of outstanding shares. Other top guru shareholders include Dodge & Cox, PRIMECAP, Pioneer, Tweedy Browne (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), Grantham, Simons’ firm, Greenblatt, Richard Pzena (Trades, Portfolio), Jones, Tom Gayner (Trades, Portfolio), Robert Olstein (Trades, Portfolio), Richard Snow (Trades, Portfolio) and Chuck Royce (Trades, Portfolio).
Additional trades and performance
During the quarter, Parnassus also added to its positions in Alaska Air Group Inc. (ALK, Financial), Charles Schwab Corp. (SCHW, Financial), Gap Inc. (GPS, Financial) and International Business Machines Corp. (IBM, Financial).
The Endeavor Fund’s $3.53 billion equity portfolio, which is composed of 28 stocks, is largely invested in the technology sector, followed by smaller holdings in the health care and financial services sectors.
According to GuruFocus data, the fund posted a -13.49% return in 2018, underperforming the S&P 500’s return of -4.57%.
Disclosure: No positions.
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