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The Most Popular Guru Stocks of the 4th Quarter

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GuruFocus.com
·5 min read
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In the fourth quarter of 2019, big names such as Amazon.com (NASDAQ:AMZN) and Alibaba (NYSE:BABA) had the most buys from both gurus and the general investing public. However, there were nearly as many (or more) gurus selling these big companies as there were buying them. For example, 17 gurus bought shares of Facebook (NASDAQ:FB) during the quarter, but 22 gurus sold shares of the social media giant.


To find the stocks that had the most net guru buys (i.e., guru buys minus guru sells), I used GuruFocus' Hot Picks, a Premium feature. According to the results, the companies with the most net guru buys for the quarter were XP Inc. (NASDAQ:XP) LKQ Corp. (NASDAQ:LKQ) and Uber Technologies Inc. (NYSE:UBER).

XP

XP is a Brazilian investment management company headquartered in Sao Paulo. It offers financial products such as fixed income, equities, investment funds, private pensions and wealth management services.

During the fourth quarter, 10 gurus bought shares of XP, while no gurus sold shares of the company.

On Feb. 24, shares of XP traded around $39.53 apiece for a market cap of $21.58 billion. This price marks a 46.40% increase from its initial public offering price of $27 on Dec. 13, 2019.

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XP has a cash-debt ratio of 0.54 (lower than 73.92% of competitors) and a return on capital of 94.92% (higher than 94.92% of competitors).

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According to GuruFocus calculations, investments in the Brazilian economy are expected to return 8.9% per year in the upcoming years, as compared to -3.3% for the U.S. These estimates are based on the ratio of total market cap to national gross domestic product.

Many analysts are calling XP "The Charles Schwab (NYSE:SCHW) of Brazil," since its product offerings are similar to the U.S. financial services giant. The company has a customer-first attitude when it comes to public relations, which keeps it at the low end of the cost range for its industry.

In addition to positive economic signs, Brazil's central bank recently cut the interest rate to 4.5%, representing a record low and the latest in a series of interest rate reductions from the 2016 rate of 14.25%. The combination of strong business growth and having more money to invest is a promising one for XP.

LKQ

LKQ is a leading provider of alternative and specialty automobile parts. In addition to its aftermarket products, it also offers recycled, refurbished and remanufactured parts. The company is headquartered in Chicago and has operations in North America, Europe and Taiwan.

During the fourth quarter, 10 gurus bought shares of LKQ, while only one guru sold shares of the company.

On Feb. 24, LKQ shares traded around $32.33 apiece for a market cap of $9.93 billion and a price-earnings ratio of 18.47.

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LKQ has a GuruFocus financial strength rating of 5 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 0.08 is on the low end of the spectrum, but the Altman Z-score of 2.69 means that the company is not in financial distress.

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The company has seen strong growth in revenue and net income over the years. The return on capital of 19.83% and operating margin of 7.67% are beating 72.24% of competitors.

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LKQ's focus has been on improving its margins, according to the earnings call for the third quarter of 2019. According to CEO Nick Zarcone, "LKQ posted organic North American revenue parts and services growth of 5.2 percent in the third quarter despite a scant increase in collision and liability claims."

Uber Technologies

Most famous for being the world's largest ridesharing company, Uber also offers food delivery, electric bikes and scooters. The company is based in San Francisco and operates in 63 countries worldwide.

During the fourth quarter, 11 gurus bought shares of Uber, while two gurus sold shares of the company.

On Feb. 24, shares of Uber traded around $38.31 apiece for a market cap of $65.75 billion. Since the initial public offering of the stock on May 13, 2019, shares have decreased 14.86% from the IPO price of $45.

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Uber's cash-debt ratio of 1.92 and current ratio of 2.57 indicate that the company is not in immediate danger of bankruptcy, despite the low Altman Z-score of 1.7.

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Indeed, it would be difficult to imagine the world's largest ridesharing company going belly-up. So far, its strategy has been more focused on becoming a household name rather than becoming profitable, which mirrors Facebook's (NASDAQ:FB) strategy in its early years. The logic is that once the company has a dominant market share and a brand name that others can't hope to compete with, it will be able to more quickly and efficiently cut costs and monetize its user base.

One of major concerns with Uber is its margins. The operating margin of -80.35% and net margin of -78.89% are very firmly in the red, which may prove a difficult ditch to climb out of in time for the company to meet its goal of generating a profit by the end of 2021.

However, leaving behind the phase of "rapid expansion at any cost" may result in better results than many expect, especially if Uber continues divesting unprofitable businesses like it did with its Chinese ridesharing service and Indian food delivery service.

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.

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This article first appeared on GuruFocus.