The guru’s firm approaches potential investments 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.
The guru invested in 141,067 shares of Nvidia, allocating 2.18% of the equity portfolio to the holding. The stock traded for an average price of $168.17 per share during the quarter.
The Santa Clara, California-based chipmaker has a $128.79 billion market cap; its shares were trading around $212.88 on Monday with a price-earnings ratio of 54.22, a price-book ratio of 11.53 and a price-sales ratio of 13.07.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
In his third-quarter letter to shareholders, Rolfe noted that Wedgewood Partners believes the chipmaker’s total addressable market can “double over the next five years as science is increasingly applied in the enterprise.” In addition, the firm believes the stock has bottomed out and “should be able to sustain faster growth over the next few years.”
GuruFocus rated Nvidia’s financial strength 8 out of 10, driven by comfortable interest coverage and debt ratios that outperform more than half of its competitors. In addition, the robust Altman Z-Score indicates the company is in good financial standing even though its Sloan ratio implies it has poor earnings quality.
The company’s profitability scored a 9 out of 10 rating on the back of operating margin expansion, strong returns that outperform a majority of peers and a moderate Piotroski F-Score of 5, which suggests business conditions are stable. Nvidia also has a business predictability rank of three out of five stars, which is on watch as a result of declining revenue per share over the past 12 months. According to GuruFocus, companies with this rank typically see their stocks gain an average of 8.2% per annum over a 10-year period.
Of the gurus invested in Nvidia, Spiros Segalas (Trades, Portfolio) has the largest stake with 0.60% of outstanding shares. Other top guru shareholders include PRIMECAP Management (Trades, Portfolio), the Parnassus Endeavor Fund (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Pioneer Investments (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Philippe Laffont (Trades, Portfolio) and Al Gore (Trades, Portfolio).
Rolfe picked up 168,923 shares of CDW, dedicating 1.85% of the equity portfolio to the position. The stock traded for an average price of $114.67 per share during the quarter.
The technology solutions provider, which is headquartered in Illinois, has a market cap of $19.78 billion; its shares were trading around $137.64 on Monday with a price-earnings ratio of 28.87, a price-book ratio of 21.18 and a price-sales ratio of 1.17.
According to the Peter Lynch chart, the stock is overvalued.
In the firm’s third-quarter letter, Rolfe wrote CDW is “a participant in and enabler of many of the fastest-growing areas of technology, but with a uniquely profitable and sustainable business model at an attractive valuation.” Regardless, the firm does not expect the company to grow “anywhere near the pace of some of the fastest-growing technology vendors.”
CDW’s financial strength was rated 5 out of 10 by GuruFocus. In addition to adequate interest coverage, the company is supported by a high Altman Z-Score of 4.29.
The company’s profitability scored an 8 out of 10 rating. In addition to an expanding operating margin, CDW is supported by strong returns, consistent earnings and revenue growth and a high Piotroski F-Score of 8, which suggests operations are healthy. 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.
With 1.70% of outstanding shares, Pioneer is the company’s largest guru shareholder. Simons’ firm, Ron Baron (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) also own the stock.
During the quarter, Rolfe also added to the firm’s positions in Alphabet Inc. (GOOGL, Financial), Electronic Arts Inc. (EA, Financial), Alcon Inc. (ALC, Financial), Annaly Capital Management Inc. (NLY, Financial) and BP PLC (BP, Financial).
The guru’s $1.13 billion equity portfolio, which is composed of 38 stocks, is largely invested in the consumer cyclical sector with a weight of 22.21%. Other top industries represented are communications services at 19.27% and technology at 17.35%.
According to GuruFocus, Wedgwood posted a return of -4.01% in 2018, slightly outperforming the S&P 500’s -4.57% return.
Disclosure: No positions.
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