The 3Q10 GMO quarterly update provided the following market review and out on the US equity market:
As of September 30, these are the top holdings of the firm:
No. 1: Oracle Corp. (ORCL, Financial), Weightings: 5.6% - 58,410,492 Shares
Oracle Corporation is one of the world's suppliers of software for information management. Oracle Corp. has a market cap of $138.2 billion; its shares were traded at around $27.49 with a P/E ratio of 16.27 and P/S ratio of 5.15. The dividend yield of Oracle Corp. stocks is 0.73%. Oracle Corp. had an annual average earning growth of 16.7% over the past 10 years. GuruFocus rated Oracle Corp. the business predictability rank of 2.5-star.
No. 2: Johnson & Johnson (JNJ, Financial), Weightings: 5.3% - 23,946,007 Shares
Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. Johnson & Johnson has a market cap of $171.6 billion; its shares were traded at around $62.3 with a P/E ratio of 13.12 and P/S ratio of 2.77. The dividend yield of Johnson & Johnson stocks is 3.47%. Johnson & Johnson had an annual average earning growth of 10.8% over the past 10 years. GuruFocus rated Johnson & Johnson the business predictability rank of 4.5-star.
No. 3: Microsoft Corp. (MSFT, Financial), Weightings: 5.28% - 60,351,726 Shares
Microsoft develops, manufactures, licenses, and supports a wide range of software products for a multitude of computing devices. Microsoft Corp. has a market cap of $218.5 billion; its shares were traded at around $25.25 with a P/E ratio of 10.88 and P/S ratio of 3.5. The dividend yield of Microsoft Corp. stocks is 2.53%. Microsoft Corp. had an annual average earning growth of 12.6% over the past 10 years. GuruFocus rated Microsoft Corp. the business predictability rank of 3-star.
No. 4: Pfizer Inc (PFE, Financial), Weightings: 4.5% - 73,262,766 Shares
Pfizer Inc is a research-based, global pharmaceutical company that discovers and develops innovative, value-added products that improve the quality of life of people around the world and help them enjoy longer, healthier, and more productive lives. Pfizer Inc has a market cap of $132.55 billion; its shares were traded at around $16.49 with a P/E ratio of 7.33 and P/S ratio of 2.65. The dividend yield of Pfizer Inc stocks is 4.37%. Pfizer Inc had an annual average earning growth of 1.8% over the past 10 years.
No. 5: WalMart Stores Inc. (WMT, Financial), Weightings: 4.47% - 23,366,303 Shares
Wal-Mart Stores, Inc. is the world's largest retailer. Walmart Stores Inc. has a market cap of $195.43 billion; its shares were traded at around $53.74 with a P/E ratio of 13.71 and P/S ratio of 0.48. The dividend yield of Walmart Stores Inc. stocks is 2.25%. Walmart Stores Inc. had an annual average earning growth of 11.1% over the past 10 years. GuruFocus rated Walmart Stores Inc. the business predictability rank of 5-star.
No. 6: The CocaCola Company (KO, Financial), Weightings: 3.94% - 18,849,536 Shares
The Coca-Cola Company is the world's largest beverage company and is the producer and marketer of soft drinks. The Cocacola Company has a market cap of $148.06 billion; its shares were traded at around $64.11 with a P/E ratio of 18.64 and P/S ratio of 4.78. The dividend yield of The Cocacola Company stocks is 2.75%. The Cocacola Company had an annual average earning growth of 8.9% over the past 10 years. GuruFocus rated The Cocacola Company the business predictability rank of 3.5-star.
Check out GMO’s complete stock portfolio by clicking on Jeremy Grantham.
Read the commentary portion of the GMO quarterly update here:
GMO3Q10Updates
Market Review
U.S. investors shook off their European sovereign debt hangover in the third quarter. After the favored recipe of government intervention quelled investor fear that European troubles could spill into the global economy, U.S. stocks bounced back strongly from their second quarter losses. The S&P 500 posted a gain of 11.3% for the period, clawing its way back into positive territory for the year in full. Statements and expectations about future action by the Federal Reserve lifted investor spirits during the period. The Fed’s promise to intervene if economic conditions worsened was viewed by investors as a promising protection against the prospect of a double-dip recession.
While a palatable resolution to the European sovereign debt crisis sent stocks higher during the quarter, investment factor spreads were narrow. There was little difference between the relative returns of high and low quality stocks, as both groups lagged a rising market. High quality’s modest underperformance in a rising market is of particular note. The group experienced an unexpectedly poor second quarter, as worries about U.S. high quality multinationals’ European exposure trumped their defensive business characteristics in investors’ minds. With markets rising in the third quarter, investors might have expected another poor performance – a “heads I win, tails you lose” scenario – as buyers who avoided quality in the second quarter market decline due to its “risky” exposure to Europe now found it insufficiently risky in a rising market. Notably, this was not the case. While high quality stocks underperformed during the quarter, it was by a modest margin in comparison with past flights to risk. Quality’s second and third quarter experience highlights both the folly of over-emphasizing short periods of relative return and the importance of a value-based philosophy, where short-term underperformance merely serves as an opportunity to buy more of a good thing at an even better price. Keeping on the value theme, bottom-up valuation metrics (i.e., models that seek undervalued individual stocks) also exhibited tight spreads during the period, delivering mixed relative returns that, for most metrics, were neither extremely bad nor extremely good.
Simple measures of “value” like price/book and price/ earnings were strong participants in the 2009 market rally, owing to their heavy exposure to the more beaten-down, cyclical areas of the market. But their 2010 performance has reflected a less extreme environment than the rapid rotations between greed and fear that marked the 2008-09 period. Finally, momentum metrics posted similarly modest relative returns for the period, though for the most part they outperformed. Momentum’s “calmingdown” is another notable comparison to the greed-fear pendulum of 2008-09 where momentum metrics were alternately woeful (caught holding heavy commodities exposure as the market began to unwind in 2008), heroic (rotating into defensive positioning in the depths of the crisis), and even more woeful (getting heavily defensive just as the market turned in March of 2009). While momentum’s modest third quarter outperformance might be a let-down for adrenaline addicts, its more modest outperformance harkens back to the days when momentum models tracked individual companies and were not simply a beta pass-through … an interesting trend to watch moving forward.
Outlook
In these uncertain times, macroeconomic prognostication seems to be the topic du jour. Inflation vs. deflation, Gold vs. bonds, Government intervention vs. free markets, Stock picking vs. factor selection., A vibrant economic recovery vs. a double-dip recession vs. Armageddon 2.0. A repentant urge drives investors and scholars to wade into areas complex and unknown in hopes of finding that single idea that would have prevented the 2008-09 calamity (or at least made money when it occurred). Lost in this macro quagmire, however, is the fundamental simplicity of the task at hand. In the long run, investment returns have three sources: dividends, fundamental growth, and changes in price multiple. Simple does not mean easy. There are innumerable factors that influence a company’s ability to pay dividends and grow, and the multiple the market is willing to pay for it. But at the heart of a value investment philosophy is an understanding of what is knowable, what is unknowable, the risks to both the known and the unknown, and where we derive an edge.
Doing simple things well is a big enough task without layering on an urge to parse the latest economic data to fit a macro theory, distorting any edge we might have obtained. Our focus remains on understanding the knowable, acknowledging the unknown, weighing the associated risks, and finding investments trading for less than they’re worth. We’ll leave prognostications to the prognosticators. After all, it’s a crowded field.
As of September 30, these are the top holdings of the firm:
No. 1: Oracle Corp. (ORCL, Financial), Weightings: 5.6% - 58,410,492 Shares
Oracle Corporation is one of the world's suppliers of software for information management. Oracle Corp. has a market cap of $138.2 billion; its shares were traded at around $27.49 with a P/E ratio of 16.27 and P/S ratio of 5.15. The dividend yield of Oracle Corp. stocks is 0.73%. Oracle Corp. had an annual average earning growth of 16.7% over the past 10 years. GuruFocus rated Oracle Corp. the business predictability rank of 2.5-star.
No. 2: Johnson & Johnson (JNJ, Financial), Weightings: 5.3% - 23,946,007 Shares
Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. Johnson & Johnson has a market cap of $171.6 billion; its shares were traded at around $62.3 with a P/E ratio of 13.12 and P/S ratio of 2.77. The dividend yield of Johnson & Johnson stocks is 3.47%. Johnson & Johnson had an annual average earning growth of 10.8% over the past 10 years. GuruFocus rated Johnson & Johnson the business predictability rank of 4.5-star.
No. 3: Microsoft Corp. (MSFT, Financial), Weightings: 5.28% - 60,351,726 Shares
Microsoft develops, manufactures, licenses, and supports a wide range of software products for a multitude of computing devices. Microsoft Corp. has a market cap of $218.5 billion; its shares were traded at around $25.25 with a P/E ratio of 10.88 and P/S ratio of 3.5. The dividend yield of Microsoft Corp. stocks is 2.53%. Microsoft Corp. had an annual average earning growth of 12.6% over the past 10 years. GuruFocus rated Microsoft Corp. the business predictability rank of 3-star.
No. 4: Pfizer Inc (PFE, Financial), Weightings: 4.5% - 73,262,766 Shares
Pfizer Inc is a research-based, global pharmaceutical company that discovers and develops innovative, value-added products that improve the quality of life of people around the world and help them enjoy longer, healthier, and more productive lives. Pfizer Inc has a market cap of $132.55 billion; its shares were traded at around $16.49 with a P/E ratio of 7.33 and P/S ratio of 2.65. The dividend yield of Pfizer Inc stocks is 4.37%. Pfizer Inc had an annual average earning growth of 1.8% over the past 10 years.
No. 5: WalMart Stores Inc. (WMT, Financial), Weightings: 4.47% - 23,366,303 Shares
Wal-Mart Stores, Inc. is the world's largest retailer. Walmart Stores Inc. has a market cap of $195.43 billion; its shares were traded at around $53.74 with a P/E ratio of 13.71 and P/S ratio of 0.48. The dividend yield of Walmart Stores Inc. stocks is 2.25%. Walmart Stores Inc. had an annual average earning growth of 11.1% over the past 10 years. GuruFocus rated Walmart Stores Inc. the business predictability rank of 5-star.
No. 6: The CocaCola Company (KO, Financial), Weightings: 3.94% - 18,849,536 Shares
The Coca-Cola Company is the world's largest beverage company and is the producer and marketer of soft drinks. The Cocacola Company has a market cap of $148.06 billion; its shares were traded at around $64.11 with a P/E ratio of 18.64 and P/S ratio of 4.78. The dividend yield of The Cocacola Company stocks is 2.75%. The Cocacola Company had an annual average earning growth of 8.9% over the past 10 years. GuruFocus rated The Cocacola Company the business predictability rank of 3.5-star.
Check out GMO’s complete stock portfolio by clicking on Jeremy Grantham.
Read the commentary portion of the GMO quarterly update here:
GMO3Q10Updates
