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Jerome Dodson Goes 2 for 2 in 1st Quarter

- By Sydnee Gatewood

Parnassus Investments leader Jerome Dodson (Trades, Portfolio) disclosed that he established two new positions and exited two others in his first-quarter portfolio, which was released earlier this week.


With the goal of capital appreciation, the guru's San Francisco-based firm invests across the capitalization spectrum in discounted companies that have strong competitive advantages, relevant products or services that will compound growth over the long term and quality management teams. Dodson is also known for being socially responsible, which means he takes the business' environmental and societal impacts into account.

Based on these criteria, Dodson opened positions in Dentsply Sirona Inc. (XRAY) and Sysco Corp. (SYY) and closed his Allergan PLC (AGN) and Pentair PLC (PNR) holdings during the quarter.

Dentsply Sirona

Having previously divested Dentsply Sirona from the portfolio in second-quarter 2018, the guru started a new 445,361-share position in the first quarter of 2019. The stock's average price during the quarter was $43.87 per share. The holding was given 2.38% equity portfolio space.

The York, Pennsylvania-based company, which manufactures dental equipment and supplies, has a $10.86 billion market cap; its shares were trading around $48.54 on Thursday with a forward price-earnings ratio of 21.69, a price-book ratio of 2.12 and a price-sales ratio of 2.75.

The median price-sales chart shows the stock is trading above its historical value, suggesting it is overpriced.

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GuruFocus rated Dentsply Sirona's financial strength 6 out of 10. Although the company has sufficient interest coverage, the Altman Z-Score of 2.27 indicates it is under some fiscal pressure as a result of recording declining revenue per share over the last five years.

Weighed down by a declining operating margin and returns that underperform competitors, the company's profitability and growth scored a 5 out of 10 rating. Dentsply Sirona also has a moderate Piotroski F-Score of 5, which suggests operations are stable, 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 year.

Of the gurus invested in Dentsply Sirona, Generation Investment Management has the largest stake with 9.75% of outstanding shares. First Eagle Investment (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Jim Simons' (Trades, Portfolio) Renaissance Technologies, Joel Greenblatt (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio) and Chuck Royce (Trades, Portfolio) are also shareholders.

Sysco

Dodson invested in 280,124 shares of Sysco, which had an average price of $65.02 per share during the quarter, allocating 2.02% of the equity portfolio to the position. He previously sold out of the stock in the fourth quarter of 2008.

The marketing and food products distributor, which is headquartered in Houston, has a market cap of $36.38 billion; its shares were trading around $70.86 on Thursday with a price-earnings ratio of 25.3, a price-book ratio of 16.79 and a price-sales ratio of 0.62.

According to the Peter Lynch chart, the stock is overvalued since it is trading above its fair value.

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Sysco's financial strength was rated 6 out of 10 by GuruFocus. Despite issuing approximately $4.3 billion in new long-term debt over the last three years, it is at a manageable level as a result of adequate interest coverage. In addition, the robust Altman Z-Score of 5.98 suggests the company is in good fiscal health.

The company's profitability and growth scored a 7 out of 10 rating, driven by operating margin expansion, solid returns that outperform industry peers and a strong Piotroski F-Score of 7, which indicates business conditions are healthy. Sysco also has a one-star business predictability rank.

With 0.81% of outstanding shares, Yacktman Asset Management (Trades, Portfolio) is the company's largest guru shareholder. Other gurus invested in the stock are Simons' firm, the Yacktman Fund (Trades, Portfolio), the Yacktman Focused Fund (Trades, Portfolio), Pioneer, Greenblatt, Cohen and Mairs and Power (Trades, Portfolio).

Allergan

The investor sold his 147,182 remaining shares of Allergan, which traded for an average price of $144.95 per share during teh quarter, impacting the equity portfolio by -2.38%. GuruFocus estimates he lost 18% on the investment since establishing it in the first quarter of 2016.

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The Irish specialty pharmaceutical company has a $45.70 billion market cap; its shares were trading around $138.39 on Thursday with a forward price-earnings ratio of 8.89, a price-book ratio of 0.73 and a price-sales ratio of 3.01.

Based on the median price-sales chart, the stock appears to be overvalued.

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Weighed down by poor interest coverage and a low cash-debt ratio, GuruFocus rated Allergan's financial strength 5 out of 10. In addition, the Altman Z-Score of 0.83 warns the company is at risk of going bankrupt.

The pharmaceutical company's profitability and growth fared even worse, scoring a 3 out of 10 rating. In addition to margins and returns that underperform competitors, Allergan is being hurt by declining revenue per share and a low Piotroski F-Score of 3, which suggests operating conditions are poor. The company also has a one-star business predictability rank.

The Vanguard Health Care Fund (Trades, Portfolio) is the company's largest guru shareholder with 4.74% of outstanding shares. Other top guru investors include Seth Klarman (Trades, Portfolio), Mason Hawkins (Trades, Portfolio), Simons' firm, John Paulson (Trades, Portfolio), David Tepper (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Cohen, David Carlson (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), Pioneer and many more.

Pentair

Dodson divested of all 460,000 shares of Pentair, which had an average price of $41.60 per share during the quarter, impacting the equity portfolio by -2.11%. According to GuruFocus, he has made an estimated gain of 9.7% on the investment since establishing it in fourth-quarter 2015.

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The London-based company, which manufactures pumps, filters, valves and thermal solutions for the water treatment and electrical markets, has a market cap of $6.43 billion; its shares were trading around $37.48 on Thursday with a price-earnings ratio of 19.12, a price-book ratio of 3.55 and a price-sales ratio of 1.91.

The Peter Lynch chart suggests the stock is overvalued.

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Despite recording a decline in revenue per share over the last five years, Pentair's financial strength was rated 6 out of 10 by GuruFocus. In addition to having comfortable interest coverage, the company's robust Altman Z-Score of 3.46 indicates it is in good fiscal standing.

The company's profitability and growth scored a 5 out of 10 rating, boosted by operating margin expansion, strong returns that outperform industry peers and a moderate Piotroski F-Score of 5. Pentair also has a one-star business predictability rank.

With 1.15% of outstanding shares, Mairs and Power (Trades, Portfolio) is the company's largest guru shareholder. PRIMECAP Management (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Pioneer, Greenblatt and Caxton Associates (Trades, Portfolio) also own the stock.

Additional trades and portfolio performance

During the quarter, Dodson added to his holdings of Alliance Data Systems Corp. (ADS), Nvidia Corp. (NVDA) and Cerner Corp. (CERN). He also trimmed his positions in Mattel Inc. (MAT), Belmond Ltd. (BEL), Nielsen Holdings PLC (NLSN), Starbucks Corp. (SBUX) and Zayo Group Holdings Inc. (ZAYO).

The guru's $926.9 million equity portfolio, which is composed of 34 stocks, is largely invested in the technology and financial services sector. According to its fact sheet, the Parnassus Fund returned -9.73% in 2018, underperforming the S&P 500's -4.38% return.

Disclosure: No positions.

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This article first appeared on GuruFocus.