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David Rolfe Adds 4 Stocks to Portfolio in 4th Quarter

GuruFocus.com
·8 min read

When he reported Wedgewood Partners' portfolio for the fourth quarter of 2019 last week, Chief Investment Officer David Rolfe (Trades, Portfolio) disclosed four new holdings.


The guru's St. Louis-based firm approaches potential investments with the mindset of a business owner, analyzing 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.

Taking these criteria into consideration, Rolfe established positions in Bristol-Myers Squibb Co. (NYSE:BMY), S&P Global Inc. (NYSE:SPGI), Fleetcor Technologies Inc. (NYSE:FLT) and Copart Inc. (NASDAQ:CPRT) during the quarter.

Bristol-Myers Squibb

The guru invested in 391,442 shares of Bristol-Myers Squibb, allocating 2.55% of the equity portfolio to the position. The stock traded for an average price of $57.47 per share during the quarter.

The New York-based pharmaceutical company, which focuses on drugs to treat cardiovascular, oncology and immune disorders, has a $155.61 billion market cap; its shares were trading around $66.38 on Tuesday with a price-earnings ratio of 30.25, a price-book ratio of 6.11 and a price-sales ratio of 4.48.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. Supported by a share price and price-sales ratio near multiyear highs, the GuruFocus valuation rank of 5 out of 10 also leans toward overvaluation.

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GuruFocus rated Bristol-Myers Squibb's financial strength 6 out of 10. Although the company has issued approximately $18.1 billion in new long-term debt over the past three years, it is still at a manageable level due to sufficient interest coverage. The sturdy Altman Z-Score of 4.69 indicates the company is in good financial standing.

The company's profitability scored a 9 out of 10 rating, driven by operating margin expansion and strong returns that outperform a majority of competitors. Bristol-Myers also has a high Piotroski F-Score of 7, which implies healthy operations, 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 many gurus invested in Bristol-Myers Squibb, Jim Simons (Trades, Portfolio) Renaissance Technologies has the largest stake with 2.57% of outstanding shares. Other top guru shareholders include Dodge & Cox, the Vanguard Health Care Fund (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Seth Klarman (Trades, Portfolio), Richard Pzena (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), NWQ Managers (Trades, Portfolio) and Kahn Brothers (Trades, Portfolio).

S&P Global

Rolfe picked up 86,022 shares of S&P Global, dedicating 2.38% of the equity portfolio to the holding. During the quarter, the stock traded for an average price of $260.36 per share.

Headquartered in New York, the company, which is a collection of businesses that provide ratings and benchmarks to financial markets around the world, has a market cap of $74.46 billion; its shares were trading around $307.70 on Tuesday with a price-earnings ratio of 35.78, a price-book ratio of 156.6 and a price-sales ratio of 11.33.

According to the Peter Lynch chart, the stock is overvalued. The valuation rank of 1 out of 10, along with a share price and price-sales ratio near 10-year highs, supports this assessment.

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S&P Global's financial strength was rated 5 out of 10 by GuruFocus, driven by adequate interest coverage and a robust Altman Z-Score of 7.34.

The company's profitability fared even better, scoring a 9 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 8. S&P Global also has a one-star business predictability rank.

In his fourth-quarter 2019 letter, Rolfe said S&P Global "has several unique assets" that will benefit from "strong secular trends that should drive attractive double-digit earnings growth," including low interest rates and the expansion of global capital markets.

With 0.58% of outstanding shares, Spiros Segalas (Trades, Portfolio) is the company's largest guru shareholder. Other top guru investors include Bill Nygren (Trades, Portfolio), Daniel Loeb (Trades, Portfolio), Pioneer, David Carlson (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Simons' firm, Joel Greenblatt (Trades, Portfolio), Ron Baron (Trades, Portfolio) and George Soros (Trades, Portfolio).

Fleetcor Technologies

The investor purchased 61,274 shares of Fleetcor, giving the position 1.79% space in the equity portfolio. Shares traded for an average price of $295.11 each during the quarter.

The Atlanta-based company, which provides fleet and workforce payment solutions, has a $27.52 billion market cap; its shares were trading around $322.44 on Tuesday with a price-earnings ratio of 32.5, a price-book ratio of 7.42 and a price-sales ratio of 10.96.

Based on the Peter Lynch chart, the stock appears to be overvalued. Supported by a share price and price-sales ratio near multiyear highs, the GuruFocus valuation rank of 3 out of 10 also supports this assessment.

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GuruFocus rated Fleetcor's financial strength 5 out of 10. Despite the company issuing approximately $1.2 billion in new long-term debt over the past three years, it is at an acceptable level due to sufficient interest coverage. Further, the Altman Z-Score of 3.02 suggests it is in good financial health.

Propelled by operating margin expansion, the company's profitability scored a perfect 10 out of 10 rating. Fleetcor also has strong returns that outperform a majority of competitors and a high Piotroski F-Score of 8. On the back of consistent 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.

In his letter, Rolfe said that as Fleetcor "pushes to double the size of its business every four years," he believes the company is well positioned to achieve its goal.

Segalas is the company's largest guru shareholder with a 2.09% stake. Chase Coleman (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Cohen, Baron, Pioneer, Greenblatt, Paul Tudor Jones (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and Mairs and Power (Trades, Portfolio) also have positions in the stock.

Copart

Rolfe bought 193,451 shares of Copart, expanding the equity portfolio by 1.78%. During the quarter, the stock traded for an average per-share price of $85.63.

The online vehicle auctioneer service, which is headquartered in Dallas, has a market cap of $23.89 billion; its shares were trading around $102.97 on Tuesday with a price-earnings ratio of 35.31, a price-book ratio of 12.42 and a price-sales ratio of 11.5.

The Peter Lynch chart suggests the stock is overvalued. In addition, with a share price and price ratios near 10-year highs, the valuation rank of 1 out of 10 also supports overvaluation.

Copart's financial strength was rated 7 out of 10 by GuruFocus, boosted by comfortable interest coverage and a high Altman Z-Score of 18.03.

The company's profitability scored a perfect 10 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of competitors, steady earnings and revenue growth and a high Piotroski F-Score of 7. Copart also has a 4.5-star business predictability rank.

In his letter, Rolfe said as it heads into 2020, Copart is "riding a wave of both company specific growth drivers, plus industry-specific drivers."

"On the industry front, Copart's supply of prospective auctioned and salvaged vehicles continues to be robust due to the rise of accident frequencies due to the combination of aging vehicles (almost 12 years on average), increasing driver distractions (smartphones), and rising miles driven (at least in most geographies)," he wrote. "In addition, the rising complexity of new autos, particularly since 2014, has resulted in a marked increase in the frequency in total losses from insurance companies."

With 0.26% of its outstanding shares, Cohen is the company's largest guru shareholder. Pioneer, Simons' firm, Mario Gabelli (Trades, Portfolio), Jones and Caxton also own the stock.

Additional trades and portfolio performance

During the quarter, Rolfe also added to his holdings of Nvidia Corp. (NASDAQ:NVDA), CDW Corp. (NASDAQ:CDW), Motorola Solutions Inc. (NYSE:MSI), Electronic Arts Inc. (NASDAQ:EA) and Annaly Capital Management Inc. (NYSE:NLY).

His firm's $986 million equity portfolio, which is composed of 39 stocks, is largely invested in the technology, communication services and consumer cyclical sectors.

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Wedgewood posted a return of 31.96% for 2019, slightly outperforming the S&P 500 Index's 31.49% return.

Disclosure: No positions.

Read more here:

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This article first appeared on GuruFocus.