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David Rolfe Curbs Keysight Technologies, Boosts Meta Platforms Stake

Summary

  • The investor reduced his holdings of Keysight Technologies

    KEYS
    and Alphabet

    GOOGL
    .
  • He added to the PayPal

    PYPL
    , Meta Platforms

    FB
    and Taiwan Semiconductor Manufacturing positions.

David Rolfe (Trades, Portfolio), the chief investment officer of Wedgewood Partners, disclosed his portfolio for the first quarter of 2022 late last week.

The guru’s St. Louis-based firm approaches potential investments with the mindset of a business owner, striving to generate significant long-term wealth by analyzing a handful of undervalued companies that have a dominant product or service, consistent earnings, revenue and dividend growth, are highly profitable and have strong management teams.

In his shareholder letter for the three-month period ended March 31, Rolfe discussed the change in the Federal Reserve’s monetary policy, saying, “The Era (Error) of Quantitative Easing (QE) is over. The Era (Error) of Quantitative Tightening (QT) has begun.”

As a result of these developments, he added that the firm is “buckled up for continued bargain hunting.”

Rolfe’s 13F filings show he entered six new positions, sold out of three stocks and added to or trimmed a slew of other existing investments during the quarter. The most significant trades included reductions in the Keysight Technologies Inc. (KEYS, Financial) and Alphabet Inc. (GOOGL, Financial) holdings as well as boosts to the PayPal Holdings Inc. (PYPL, Financial), Meta Platforms Inc. (FB, Financial) and Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial) positions.

Investors should be aware that the 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but the reports can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.

Keysight Technologies

The guru slashed the Keysight Technologies (KEYS, Financial) position by 86.99%, selling 126,372 shares. The transaction had an impact of -3.46% on the equity portfolio. The stock traded for an average price of $166.80 per share during the quarter.

Rolfe now holds 18,900 shares of the company, which represent 0.42% of the equity portfolio. GuruFocus estimates he has gained 64.60% on the investment since the first quarter of 2020.

The Santa Rosa, California-based company, which manufactures test and measurement equipment and software for electronics, has a $24.84 billion market cap; its shares were trading around $135.62 on Monday with a price-earnings ratio of 26.72, a price-book ratio of 6.51 and a price-sales ratio of 5.07.

The GF Value Line

VALU
suggests the stock is fairly valued currently based on historical ratios, past financial performance and future earnings projections.

GuruFocus rated Keysight’s financial strength 7 out of 10, driven by adequate interest coverage and a high Altman Z-Score of 6.01 that indicates it is in good standing even though assets are building up at a faster rate than revenue is growing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.

The company’s profitability scored a 9 out of 10 rating on the back of an expanding operating margin, strong returns on equity, assets and capital that outperform a majority of competitors and a high Piotroski F-Score of 8 out of 9, indicating business conditions are healthy. Keysight also has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in Keysight, PRIMECAP Management (Trades, Portfolio) has the largest stake with 0.66% of its outstanding shares. John Rogers (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Ray Dalio (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and several other gurus also own the stock.

Alphabet

With an impact of -1.16% on the equity portfolio, Rolfe reduced his holding of Alphabet (GOOGL, Financial) by 15.37%, selling 3,018 shares. During the quarter, shares traded for an average price of $2,715.99 each.

The guru now holds 16,612 shares, accounting for 6.52% of the equity portfolio and is now his fifth-largest position. GuruFocus estimates he has gained 83.40% on the investment so far.

The tech conglomerate headquartered in Mountain View, California, which is the parent company of Google

GOOG
and YouTube, has a market cap of $1.51 trillion; its Class C shares were trading around $2,289.49 on Monday with a price-earnings ratio of 20.67, a price-book ratio of 5.92 and a price-sales ratio of 5.71.

According to the GF Value Line, the stock is modestly undervalued currently.

Alphabet’s financial strength was rated 9 out of 10 by GuruFocus. In addition to comfortable interest coverage, the company is supported by a robust Altman Z-score of 11.64. The ROIC also eclipses the WACC, indicating good value creation is occurring.

The company’s profitability also fared well with a 10 out of 10 rating. In addition to operating margin expansion, Alphabet is supported by strong returns that outperform a majority of industry peers as well as a high Piotroski F-Score of 8. Boosted by consistent earnings and revenue growth, the company also has a 4.5-star predictability rank. GuruFocus research shows companies with this rank return an average of 10.6% annually.

Ken Fisher (Trades, Portfolio) has the largest stake in Alphabet with 0.28% of outstanding shares. PRIMECAP, Spiros Segalas (Trades, Portfolio), Frank Sands (Trades, Portfolio), Chris Davis (Trades, Portfolio), Simons’ firm and Bill Nygren (Trades, Portfolio) also have notable positions in the stock.

PayPal

The investor upped the PayPal (PYPL, Financial) holding by 79.28%, buying 119,820 shares. The trade had an impact of 1.95% on the equity portfolio. During the quarter, the stock traded for an average per-share price of $133.33.

He now holds 270,946 shares total, which make up 3.78% of the equity portfolio. GuruFocus says Rolfe has gained an estimated 61.30% on the investment, which was established in the third quarter of 2015.

The San Jose, California-based fintech company, which operates an online payments system, has an $88.97 billion market cap; its shares were trading around $78.12 on Monday with a price-earnings ratio of 25.36, a price-book ratio of 4.33 and a price-sales ratio of 3.52.

Based on the GF Value Line, the stock appears to be significantly undervalued currently.

In his quarterly letter, Rolfe noted that he believes the stock “attracted a variety of new investors” due to Covid, so many people view it as a “pandemic stock.”

“We think many investors only bought the stock because it was working, during a period when very little was, and they scrambled for the exits at various times as momentum turned. We were well aware of this risk, by the way, and were fully aware that the outsized growth we saw during the Covid period eventually would moderate, and this explains why we trimmed the stock in January 2021,” he wrote. “As a result of the confluence of all these factors over the past few quarters, the stock has lost roughly two-thirds of its value since last summer. This drubbing is too extreme in our view, even allowing for the general valuation compression seen across the entire market.”

GuruFocus rated PayPal’s financial strength 6 out of 10. Although the company has issued new long-term debt over the past several years, it is still manageable due to adequate interest coverage. The Altman Z-Score of 1.96, however, indicates the company is under some pressure, though value creation is occurring since the ROIC exceeds the WACC.

The company’s profitability fared even better, scoring a 9 out of 10 rating due to operating margin expansion and strong returns that top a majority of competitors. PayPal also has a moderate Piotroski F-Score of 5, meaning conditions are typical for a stable company.

With a 1.45% stake, Fisher is the company’s largest guru shareholder. Other top guru investors in PayPal are Philippe Laffont (Trades, Portfolio), PRIMECAP, Segalas and Chase Coleman (Trades, Portfolio).

Meta Platforms

Impacting the equity portfolio by 1.53%, Rolfe increased his Meta Platforms (FB, Financial) position by 28.71%, buying 48,869 shares. The stock traded for an average price of $250.52 per share during the quarter.

The guru now holds 219,070 shares total, giving it 6.87% space in the equity portfolio. As Rolfe’s second-largest holding, GuruFocus data indicates he has gained 5.26% on the investment since establishing it in the first quarter of 2018.

The social media company formerly known as Facebook, which is headquartered in Menlo Park, California, has a market cap of $552.40 billion; its shares were trading around $204.30 on Monday with a price-earnings ratio of 15.44, a price-book ratio of 4.49 and a price-sales ratio of 4.82.

The GF Value Line suggests the stock is significantly undervalued currently.

In his commentary for the quarter, Rolfe noted that while the stock detracted from the firm’s performance, “the company’s revenues have nearly doubled, while returns on invested capital have consistently clocked in near the mid-to-high 20% range” since 2018.

Meta Platforms’ financial strength was rated 8 out of 10 by GuruFocus due to a comfortable level of interest coverage and a robust Altman Z-Score of 10.35 that indicates it is in good standing. The ROIC also surpasses the WACC, suggesting the company is creating value.

The company’s profitability fared even better with a 10 out of 10 rating. Despite recording a decline in its margins, Meta is supported by strong returns that top a majority of industry peers. It also has a moderate Piotroski F-Score of 5. Steady earnings and revenue growth contributed to a 4.5-star predictability rank.

Fisher is Meta’s largest guru shareholder with a 0.41% stake. Dodge & Cox, Baillie Gifford (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Coleman, Davis, Simons’ firm and Ruane Cunniff (Trades, Portfolio), among others, also have significant stakes in the company.

Taiwan Semiconductor Manufacturing

With an impact of 1.49% on the equity portfolio, Rolfe increased his holding of Taiwan Semiconductor Manufacturing (TSM, Financial) by 41.28%, picking up 101,453 shares. During the quarter, shares traded for an average price of $117.35 each.

The guru now holds 347,234 shares, which represent 5.11% of the equity portfolio and is the ninth-largest holding. GuruFocus estimates he has lost 23% on the investment since establishing it in the second quarter of 2021.

The Taiwanese company, which manufactures semiconductor chips, has a $469.31 billion market cap; its shares were trading around $90.65 on Monday with a price-earnings ratio of 22.01, a price-book ratio of 6.15 and a price-sales ratio of 8.31.

According to the GF Value Line, the stock is modestly undervalued currently.

In his letter, Rolfe noted the stock “pulled back on geopolitical concerns and periodic market fears about the end of the ‘cycle’ in semiconductors.” However, the guru said his firm added to its holding given its promising “competitive positioning and opportunity for growth.”

GuruFocus rated Taiwan Semiconductor’s financial strength 8 out of 10. Although the company has issued new long-term debt over the past three years, it is manageable due to a sufficient level of interest coverage. The robust Altman Z-Score of 7.05 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC is also higher than the WACC, suggesting good value creation is occurring.

The company’s profitability scored a 10 out of 10 rating, driven by an expanding operating margin, strong returns that exceed a majority of competitors and a moderate Piotroski F-Score of 5. Taiwan Semiconductor’s consistent revenue per share growth contributed to a four-star predictability rank. GuruFocus says companies with this rank return an average of 9.8% annually.

With a 0.51% stake, Fisher is the company’s largest guru shareholder. Other top guru investors include Sands, First Eagle, Baillie Gifford (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Ron Baron (Trades, Portfolio), Segalas, Sarah Ketterer (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Steven Cohen (Trades, Portfolio).

Additional trades and portfolio performance

During the quarter, Rolfe also added to his holdings of UnitedHealth Group

UNH
Inc. (UNH, Financial), Microsoft

MSFT
Corp. (MSFT, Financial), Motorola Solutions Inc. (MSI, Financial), Visa

V
Inc. (V, Financial) and Booking Holdings Inc. (BKNG, Financial).

Wedgewood’s $709.05 million equity portfolio, which is composed of 43 stocks, is most heavily invested in the technology and financial services sectors.

The firm posted a return of 32.1% for 2021, outperforming the S&P 500 Index’s 28.7% return.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours.

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