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- By Sydnee Gatewood
The California-based firm, which was founded in 1983, manages the Odyssey Funds as well as . It seeks to provide long-term capital appreciation by investing in companies with stronger growth potential than their valuations suggest and that trade at reasonable prices.
According to GuruFocus Real-Time Picks, a Premium feature, Primecap reduced its Whirlpool stake by 12.49% and its United Airlines position by 4.75% on Oct. 31.
The firm sold 867,850 shares of Whirlpool, impacting the equity portfolio by -0.14%. The stock traded for an average price of $184.96 per share on the day of the transaction.
Primecap now holds 6.08 million shares total, which represent 0.97% of the equity portfolio. GuruFocus estimates the firm has gained 91.89% on the investment.
The Benton Harbor, Michigan-based company, which manufactures home appliances like washers, dryers, ovens and dishwashers, has a $12.22 billion market cap; its shares were trading around $194.87 on Monday with a price-earnings ratio of 14.21, a price-book ratio of 3.59 and a price-sales ratio of 0.65.
The Peter Lynch chart shows the stock is trading near its fair value. The GuruFocus valuation rank of 4 out of 10, however, leans more toward overvaluation since the share price and price-sales ratio are approaching multiyear highs.
GuruFocus rated Whirlpool's financial strength 5 out of 10. Although the company has issued approximately $1.3 billion in new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 2.2, however, indicates it is under some pressure since the weighted average cost of capital eclipses the return on invested capital, suggesting value is being destroyed.
The company's profitability fared a bit better, scoring a 6 out of 10 rating. While the operating margin is in decline, Whirlpool is being supported by returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6, which indicates business conditions are stable. Due to a decline in revenue per share over the past 12 months, the predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank return, on average, 1.1% annually over a 10-year period.
Despite the reduction, Primecap is still the company's largest guru shareholder with a 9.72% stake. Other top guru investors are Barrow, Hanley, Mewhinney & Strauss, Tom Gayner (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Richard Snow (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), David Einhorn (Trades, Portfolio), Charles Brandes (Trades, Portfolio) and Ray Dalio (Trades, Portfolio).
With an impact of -0.04%, Primecap sold 1.4 million shares of United Airlines. On the day of the transaction, shares traded for an average price of $33.86 each.
The firm now holds 28.8 million shares, which account for 0.84% of the equity portfolio. GuruFocus data shows it has lost an estimated 12.88% on the investment.
The airline, which is headquartered in Chicago, has a market cap of $11.53 billion; its shares were trading around $39.68 on Monday with a price-book ratio of 1.64 and a price-sales ratio of 0.45.
According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rank of 5 out of 10, however, suggests it is fairly valued.
As a result of issuing approximately $12.5 bilillion in new long-term debt over the past three years, United's financial strength was rated 3 out of 10 by GuruFocus. The weak Altman Z-Score of 0.34 also warns the company could be in danger of going bankrupt.
Boosted by an expanding operating margin, the airline's profitability scored a 6 out of 10 rating. Its returns, however, are negative and underperform a majority of industry peers. United is also being affected by a low Piotroski F-Score of 2, which indicates business conditions are in poor shape, as well as losses in operating income and declining revenue per share over the past year. The one-star predictability rank is on watch as a result.
With 9.93% of outstanding shares, Primecap is United's largest guru shareholder. Pioneer, Jim Simons (Trades, Portfolio)' Renaissance Technologies, Ainslie and Paul Tudor Jones (Trades, Portfolio) also own the stock.
Portfolio composition and performance
Over 60% of the firm's $116.54 billion equity portfolio, which was composed of 306 stocks as of the end of the second quarter, is invested in the technology and health care sectors.
Primecap's five largest holdings as of June 30 were Eli Lilly and Co. (NYSE:LLY), Microsoft Corp. (NASDAQ:MSFT), Adobe Inc. (NASDAQ:ADBE), Amgen Inc. (NASDAQ:AMGN) and Biogen Inc. (NASDAQ:BIIB).
In 2019, the Vanguard Primecap Fund returned 27.78%, underperforming the S&P 500's 31.48% return.
Disclosure: No positions.
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This article first appeared on GuruFocus.