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Top 5 Latest Buys of Frank Sands' Firm

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Sands Capital Management recently disclosed its portfolio updates for the second quarter of 2020, which ended on June 30.

Founded in 1992 by Frank M. Sands Sr., Sands Capital Management is a staff-owned independent investment management firm that invests in high-quality growth business. Frank Sands (Trades, Portfolio) Jr. joined the firm in 2000 and now serves as CEO and chief investment officer. The Arlington, Virginia-based firm has two main concentrated growth strategies: Select Growth, which chooses innovative businesses, and Global Growth, which diversifies holdings in countries outside of the U.S. Sands Capital Management has achieved success by focusing on its six investment criteria: sustainable above-average earnings growth, leadership position in a promising business space, a clear mission with a focus on value, good financial strength, rational valuation and significant competitive advantages.


Based on the firm's investment criteria, its top buys for the quarter were in Edwards Lifesciences Corp. (NYSE:EW), DexCom Inc. (NASDAQ:DXCM), Charter Communications Inc. (NASDAQ:CHTR), Warner Music Group Corp. (NASDAQ:WMG) and Grocery Outlet Holding Corp. (NASDAQ:GO).

Edwards Lifesciences

Sands Capital Management upped its stake in Edwards Lifesciences Corp by 8,015,958 shares, increasing the position by 181.67% for a total of 12,428,210 shares and impacting the equity portfolio by 1.34%. During the quarter, shares traded for an average price of $70.98.

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Based in Irvine, California, Edwards Lifesciences is a medical technology company that specializes in artificial heart valves, hemodynamic monitoring and surgical recovery.

On Aug. 13, shares of Edwards Lifesciences traded around $79.65 for a market cap of $49.49 billion and a price-earnings ratio of 67.57. The Peter Lynch chart indicates the stock is trading above its intrinsic value.

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GuruFocus gives the company a financial strength rating of 8 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 1.7 and Altman Z-Score of 13.64 indicate a strong balance sheet. Both the operating margin and net margin have been increasing over the years, indicating that the company's business model scales well.

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DexCom

The firm also added 1,342,996, or 269.86%, to its investment in DexCom for a total holding of 1,840,666 shares. The trade had a 1.32% impact on one equity portfolio. Shares traded for an average price of $355.93 during the quarter.

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DexCom is a medical technology company that develops, manufactures and distributes continuous glucose monitoring systems and supporting software. It is headquartered in San Diego.

On Aug. 13, shares DexCom traded around $434.53 for a market cap of $41.51 billion and a price-earnings ratio of 199.70. The Peter Lynch chart indicates the stock is trading above its intrinsic value, but in line with its median historical valuation.

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GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 3 out of 10. The cash-debt ratio of 1.42 is in line with the industry median, while the Altman Z-Score of 12.73 indicates the company is not in danger of bankruptcy. The return on invested capital has recently surpassed the weighted average cost of capital, indicating a turn to profitability.

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Charter Communications

The firm established a new position of 1,001,972 shares in Charter Communications, impacting the equity portfolio by 1.24%. During the quarter, shares traded for an average price of $505.65.

Charter is the telecommunications and mass media company behind the Spectrum brand name. Based in Stamford, Connecticut, the company's products include internet, cable and phone services.

On Aug. 13, shares of Charter Communications traded around $604.57 for a market cap of $123.94 billion and a price-earnings ratio of 57.58. The Peter Lynch chart indicates the stock is trading above its intrinsic value.

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GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.03 and current ratio of 0.52 show the company will likely need to take on additional debt in order to avoid bankruptcy. The WACC is currently higher than the ROIC, indicating that the company is earning a negative return on its investments.

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Warner Music Group

The firm invested in 13,391,903 shares of Warner Music Group, impacting the equity portfolio by 0.96%. Shares traded for an average price of $31.19 during the quarter.

Warner Music Group is the third-largest recording company in the global music industry. The New York-based company has interests in recorded music, music publishing and artist services.

On Aug. 13, shares of Warner Music Group traded around $29.51 for a market cap of $15.02 billion and a forward price-earnings ratio of 44.65 based on Morningstar earnings estimates. Net income has been in decline for several years and has now dropped into the negatives.

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GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rating of 5 out of 10. The current ratio of 0.63 and Altman Z-Score of 1.47 indicate the company could be in danger of bankruptcy without additional funding. As shown in the chart below, the operating margin has most often been positive over the past decade while the net margin has most often been negative, with a 10-year median of 4.28% for the operating margin and a 10-year median of -3.07% for the net margin.

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Grocery Outlet Holding

The firm also established a new holding in Grocery Outlet Holding worth 8,917,556 shares, which had a 0.88% impact on the equity portfolio. During the quarter, shares traded for an average price of $35.77.

Grocery Outlet operates a chain of discount supermarkets that offer overstocked and closeout products from a wide range of suppliers. The California-based company has stores in California, Oregon, Washington, Idaho, Nevada and Pennsylvania.

On Aug. 13, shares of Grocery Outlet traded around $42.72 for a market cap of $3.90 billion and a price-earnings ratio of 63.57. The Peter Lynch chart indicates the stock is trading above its intrinsic value, but near its median historical valuation.

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GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 3 out of 10. The cash-debt ratio of 0.06 is lower than 89.01% of competitors, but the Altman Z-Score of 3.05 indicates the company is not likely in danger of bankruptcy. Over the past three years, revenue has grown at an average annual rate of 8.1%, while earnings per share without non-recurring items has grown at an average annual rate of 11.4%.

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Portfolio overview

As of the quarter's end, the firm held shares in 77 stocks valued at $41.32 billion. The top holdings were Amazon.com Inc. (AMZN) with 7.44% of the equity portfolio, Sea Ltd. (SE) with 7.01% and Visa Inc. (V) with 6.12%.

In terms of sector weighting, the firm was most invested in communication services, technology and health care.

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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. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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This article first appeared on GuruFocus.