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Chris Davis' Firm Trims Amazon, Invests in IAC

GuruFocus.com
·6 min read

- By Margaret Moran

Davis Selected Advisors recently disclosed its portfolio updates for the third quarter of 2020, which ended on Sept. 30.

Founded in 1969, Davis Selected Advisors is an employee-owned investment management firm based in Tuscon, Arizona. The current chairman, Chris Davis (Trades, Portfolio), joined the firm in 1989 and serves as the portfolio manager for the Large Cap Value Portfolios and as a research team member for other portfolios. The firm's investment strategy aims to purchase durable, well-managed businesses at value prices.


During the third quarter, the firm's biggest sells were in Amazon.com Inc. (NASDAQ:AMZN) and Carrier Global Corp. (NYSE:CARR), while its biggest buys were in Wells Fargo & Co. (NYSE:WFC) and IAC/InterActiveCorp (NASDAQ:IAC).

Amazon.com

The firm reduced its Amazon.com holding by 173,713 shares, or 32.84%, for a remaining holding of 355,321 shares. The trade had a -2.77% impact on the equity portfolio. During the quarter, shares traded for an average price of $3,151.21.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

Amazon is a multinational e-commerce giant based in Seattle. Its vast network allows it to deliver many products to customers within one or two days, giving it tremendous pricing power. The company also has cloud computing, digital streaming, artificial intelligence and other tech operations.

On Nov. 12, shares of Amazon traded around $3,110.28 for a market cap of $1.56 trillion and a price-earnings ratio of 91.07. According to the GuruFocus Value chart, the stock is modestly overvalued.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

The company has a financial strength rating of 7 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.84 and Altman Z-Score of 6.5 both show a strong liquidity position. The company has achieved a three-year revenue growth rate of 25.6% and a three-year Ebitda growth rate of 42.2%.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

Carrier Global

The firm also sold 8,083,549 shares, or 26.44%, of its Carrier Global investment for a remaining stake of 22,491,927 shares. The trade had a -1.04% impact on the equity portfolio. Shares traded for an average price of $28.24 during the quarter.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

Carrier Global is widely recognized as one of the largest and most reputable HVAC providers in the world, with a presence in the Americas, Europe, Asia Pacific and Middle East and Africa regions. It was spun off from parent company Raytheon before its merger with United Technologies, which formed Raytheon Technologies (RTX).

On Nov. 12, shares of Carrier traded around $37.96 for a market cap of $32.9 billion and a price-earnings ratio of 27.79. Since the spinoff from Raytheon earlier this year, the share price has gained 216%.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

The company has a financial strength rating of 5 out of 10 and a profitability rating of 4 out of 10. The cash-debt ratio of 0.3 is lower than the industry median of 0.65, but the interest coverage ratio of 9.49 shows the company has enough to make its interest payments. The operating margin of 20.37% and net margin of 14.81% are part of a recent uptrend in profitability.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

Wells Fargo

The firm added 12,841,092 shares, or 44.95%, to its Wells Fargo position for a total holding of 41,407,144 shares, impacting the equity portfolio by 1.68%. During the quarter, shares traded for an average price of $24.66.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

Wells Fargo is a U.S. bank major that is still reeling from the aftershocks of a fake account scandal back in 2016. After the incident, Wells Fargo has been subject to restrictions such as an asset cap and, more recently, being required to donate any interest paid on loans from the government's Covid-19 loan programs (a restriction not placed on other banks).

On Nov. 12, shares of Wells Fargo traded around $23.81 for a market cap of $98.44 billion and a price-earnings ratio of 64.35. According to the GuruFocus Value chart, the stock could be a value trap.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

The company has a financial strength rating of 3 out of 10 and a profitability rating of 4 out of 10. The cash-debt ratio of 1.09 is lower than the industry median of 1.44, but higher than the company's own 10-year median of 0.19. The three-year revenue growth rate is 3.6%, while the three-year earnings per share without non-recurring items growth rate is only 0.5%.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

IAC/InterActiveCorp

The firm established a new position worth 2,200,462 shares in IAC/InterActiveCorp, impacting the equity portfolio by 1.47%. Shares traded for an average price of $125.50 during the quarter.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

Commonly known by its acronym, IAC is a media and internet holding company based in New York. It owns a wide variety of brands across 100 countries, including Ask, Angie's List, the spruce, vimeo, etc.

On Nov. 12, shares of IAC traded around $130.30 for a market cap of $11.12 billion. Since the company separated from Match Group (MTCH) in mid-2020, the stock has gained 22%.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

The company has a financial strength rating of 7 out of 10 and a profitability rating of 1 out of 10. The cash-debt ratio of 5.24 and debt-to-equity ratio of 0.12 are signs of financial stability. The operating margin remains in the negatives at -9.57% as of the most recent quarter, though the net margin of 23.46% has turned positive.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

Portfolio overview

At the end of the quarter, Davis Selected Advisors held shares of common stock in 114 companies valued at a total of $17.97 billion. The top holdings were Capital One Financial Corp. (COF) with 6.57% of the portfolio, Amazon with 6.22% and Alphabet Inc. (GOOG) with 6.12%.

In terms of portfolio weight, the firm is most invested in the financial services, communication services and consumer cyclical sectors.

Chris Davis' Firm Trims Amazon, Invests in IAC
Chris Davis' Firm Trims Amazon, Invests in IAC

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

Read more here:

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  • First Eagle Investment's Top 3rd-Quarter Trades

  • Diamond Hill Capital's Top 5 3rd-Quarter Buys



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This article first appeared on GuruFocus.