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Top 1st-Quarter Buys of the T Rowe Price Equity Income Fund

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GuruFocus.com
·8 min read
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The T Rowe Price Equity Income Fund (Trades, Portfolio) recently disclosed its portfolio updates for the first quarter of 2020, which ended on March 31.


The fund was started in 1985. Brian Rogers managed the portfolio for its first 30 years, establishing a conservative, value-oriented investing strategy to pursue dividend income and long-term capital growth. The strategy prefers large-cap stocks that return consistent, higher-than-average dividend income, are out of favor with the market and are expected to grow their earnings significantly. In October of 2015, John Linehan succeeded Rogers as the fund's portfolio manager.

As of the end of the quarter, the equity portfolio consisted of 104 stocks valued at $14.1 billion. The top holdings were Wells Fargo & Co. (WFC) with 3.34%, Southern Co. (SO) with 3.02% and Qualcomm Inc. (QCOM) with 2.85%. In terms of sector weighting, the fund is most invested in financial services, health care and industrials.

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Based on the above investing criteria, the fund's top buys for the quarter were AbbVie Inc. (NYSE:ABBV), DuPont de Nemours Inc. (NYSE:DD), Raymond James Financial Inc. (NYSE:RJF), Boeing Co. (NYSE:BA) and Becton, Dickinson and Co. (NYSE:BDX).

AbbVie

The firm added 1,280,000 shares to its investment in AbbVie, increasing the position by 67.72% and bringing the total number of shares owned up to 3,170,000. The trade had a 0.69% impact on the equity portfolio. During the quarter, shares traded for an average price of $85.41.

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AbbVie is a biopharmaceutical company based in Chicago. It was formed as a spinoff from Abbott Laboratories (ABT) in 2013. The company focuses on developing treatments in the fields of oncology, immunology, neuroscience, virology and general medicine.

On April 16, shares of AbbVie traded around $82.03 for a market cap of $121.43 billion and a price-earnings ratio of 15.59. According to the Peter Lynch chart, the company is trading near its fair value.

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GuruFocus gives AbbVie a financial strength rating of 4 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 0.6 is around the industry average, while the Altman Z-Score of 2.03 and current ratio of 3.18 indicate financial stability.

AbbVie's operating margin of 40.19% is beating 97.91% of competitors. The company has steadily grown its revenue and net income over the past few years.

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DuPont de Nemours

The firm also increased its holding in DuPont de Nemours by 2,820,000 shares, or 90.68%, bringing the total number of shares owned to 5,930,000 and impacting the equity portfolio by 0.68%. Shares traded at an average price of $49.25 during the quarter.

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Dupont de Nemours is an American chemicals company that was formed from the 2017 merger of Dow Chemical and Dupont and the subsequent spinoffs of Dow Inc. (DOW) and Corteva Inc. (CTVA). The company makes a variety of chemicals, pharmaceuticals, synthetic fibers, petroleum-based fuels, building materials, cosmetic chemicals, packaging and agricultural chemicals.

On April 16, shares of Dupont de Nemours traded around $35.92 for a market cap of $26.29 billion and a price-earnings ratio of 53.86. The Peter Lynch chart indicates that the stock is trading above its intrinsic value based on recent earnings results.

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GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 0.09 is lower than 90.04% of competitors, and the interest coverage of 4.43 times is also low. The Altman Z-Score of 1.01 indicates that the company may be in danger of bankruptcy within the next two years.

Dupont de Nemours has an operating margin of 12.04%, which is higher than the industry median. The 2017 merger and spinoffs caused what at first glance looks to be a dramatic drop in revenue and net income, though the company has shown top-line growth since the corporate mix-up.

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Raymond James Financial

The fund's biggest new investment was 1,290,000 shares of Raymond James Financial. The trade had a 0.58% impact on the equity portfolio. Shares traded at an average price of $85.08 during the quarter.

Based in St. Petersburg, Florida, Raymond James Financial is an independent bank and a provider of financial services to individuals, municipalities and corporations. It provides a variety of advising and financial planning services, as well as banking, insurance and other financial products.

On April 15, shares of Raymond James Financial traded around $60.75 for a market cap of $8.43 billion and a price-earnings ratio of 8.22. According to the Peter Lynch chart, the stock is trading below its fair value.

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GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 5 out of 10. The cash-debt ratio of 1.68 is average for the industry, ranking below 51.47% of competitors.

The operating margin of Raymond James Financial is 13.62% and the return on equity is 16.19%. Revenue and net income have grown steadily in recent years, and throughout most of the company's history as a publicly traded entity.

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Boeing

The firm added 365,000 shares to its investment in Boeing, increasing the position by 35.1% and bringing the total number of shares owned up to 1,405,000. The trade had a 0.39% impact on the equity portfolio. During the quarter, shares traded for an average price of $276.34.

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Boeing is a multinational aerospace company based in Chicago. It designs, manufactures and produces commercial and private aircraft, rockets, satellites, telecommunications equipment, missiles and more. It is widely regarded as the backbone of the U.S. commercial aircraft space.

On April 15, Boeing's shares traded around $134.12 for a market cap of $76.24 billion. The Peter Lynch chart puts the share price in line with the latest reported net profit for full fiscal 2018, though the company incurred a net loss in full-year 2019.

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GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.37 is average for the industry, but the Altman Z-Score of 1.47 and the current ratio of 1.05 indicate that the company may have issues meeting its debt obligations.

Boeing's operating margin has plunged to -3.48%, a 10-year low, as the company faces the blows from failures in several of its aircraft, most notably the 737 Max. Though revenue and net income have grown steadily through the company's history, both faced their largest setback in history in 2019.

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Becton, Dickinson and Co.

The firm also increased its holding of Becton, Dickenson and Co. by 215,000 shares, or 78.18%, bringing the total number of shares owned to 490,000 and impacting the equity portfolio by 0.35%. Shares traded at an average price of $ $253.86 during the quarter.

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Becton, Dickinson is a medical device and instrumentation company based in Franklin Lakes, New Jersey. It manufactures medical devices, reagents and instrument systems in a wide variety of fields, including microbiology, biopsy, diabetes care, sharps disposal and surgical instrumentation.

On April 15, shares of the company traded around $261.61 for a market cap of $70.46 billion and a price-earnings ratio of 95.5. The Peter Lynch chart indicates that the company is trading above its intrinsic value, though its valuation has been high since 2014.

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GuruFocus gives Becton, Dickenson a financial strength rating of 4 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 0.03 is lower than 97.58% of competitors, and the current ratio of 0.96 also indicates that the company may be strapped for cash in the short term. However, the Altman Z-Score of 2.01 suggests that the company is not in immediate danger of bankruptcy.

The operating margin of 10.64% and return on capital of 19.43% are both higher than the industry median. The top line has grown significantly in recent years, though net income has been more inconsistent.

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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 or consult registered investment advisors before taking action in the stock market.

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This article first appeared on GuruFocus.