The Parnassus Endeavor Fund (Trades, Portfolio) released its second-quarter equity portfolio late last week, revealing potential value opportunities as rising inflation, increasing interest rates and other economic headwinds continue to impact the market.
The fund, which is part of Jerome Dodson (Trades, Portfolio)’s San Francisco-based Parnassus Investments, avoids investing in fossil fuel-related stocks. Rather, it prefers companies that have exemplary work environments and are known for being socially and environmentally responsible. With the goal of capital appreciation, the portfolio managers invest in discounted large-cap companies that have strong competitive advantages, relevant products and quality management teams.
In 2020, Dodson stepped down from managing the funds, but remained chairman of the board. Then, in July of 2021, Affiliated Managers Group announced it was paying $600 million to acquire a majority stake in Parnassus Investments. The deal closed in October of last year.
Based on its criteria, NPORT-P filings show the fund established three new positions during the quarter, sold out of four holdings and added to or trimmed a handful of other existing investments. Among its most notable trades were new holdings in Deer & Co. (DE) and Amdocs Ltd. (DOX, Financial), reductions in its Vertex Pharmaceuticals Inc. (VRTX, Financial) and Applied Materials Inc. (AMAT, Financial) positions and the sale of its VMware Inc. (VMW, Financial) investment.
Investors should be aware that, just like 13F reports, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, they collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these limited filings can provide valuable information. You can read more about form NPORT-P at the SEC website.
Deere
The fund invested in 287,730 shares of Deere (DE), allocating 1.94% of the equity portfolio to the position. The stock traded for an average price of $368.92 per share during the quarter. It previously sold out of the company in the fourth quarter of 2018.
The iconic Moline, Illinois-based company, which manufactures a variety of farm equipment and other heavy machinery, has a $92.56 billion market cap; its shares were trading around $302.27 on Monday with a price-earnings ratio of 15.8, a price-book ratio of 4.90 and a price-sales ratio of 2.08.
The GF Value Line suggests the stock is modestly undervalued currently based on its historical ratios, past performance and future earnings projections.
GuruFocus rated Deere’s financial strength 4 out of 10. Although the company has issued new long-term debt over the past several years, it is still at a manageable level. The Altman Z-Score of 2.76 also indicates the company is under some pressure. The return on invested capital overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s profitability fared better with an 8 out of 10 rating, driven by an expanding operating margin and returns on equity, assets and capital that top a majority of competitors. Deere also has a moderate Piotroski F-Score of 6 out of 9, meaning conditions are typical of a stable company, and a predictability rank of one out of five stars. According to GuruFocus research, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Deere, Barrow, Hanley, Mewhinney & Strauss has the largest stake with 0.44% of outstanding shares. Baillie Gifford (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Bill Gates (Trades, Portfolio)’ foundation and Tom Gayner (Trades, Portfolio), among others, also have significant positions in the stock.
Amdocs
Parnassus picked up 844,191 shares of Amdocs (DOX, Financial), dedicating 1.58% of the equity portfolio to the holding. During the quarter, shares traded for an average price of $82.43 each.
The software company headquartered in Chesterfield, Missouri, which offers solutions to communications, media and financial services providers, has a market cap of $10.31 billion; its shares were trading around $83.93 on Monday with a price-earnings ratio of 18.81, a price-book ratio of 2.90 and a price-sales ratio of 2.37.
According to the GF Value Line, the stock is fairly valued currently.
Amdocs’ financial strength was rated 8 out of 10 by GuruFocus. In addition to adequate interest coverage, the Altman Z-Score of 4.49 indicates the company is in good standing. The ROIC also eclipses the WACC, indicating value is being created.
The company’s profitability scored a 9 out of 10 rating on the back of an expanding operating margin as well as strong returns that top a majority of industry peers. Amdocs also has a moderate Piotroski F-Score of 6, while consistent earnings and revenue growth contributed to a five-star predictability rank. GuruFocus data shows companies with this rank return an average of 12.1% annually.
With a 5.27% stake, Richard Pzena (Trades, Portfolio) is the company’s largest guru shareholder. Other top guru investors include Charles Brandes (Trades, Portfolio), John Rogers (Trades, Portfolio), Hotchkis & Wiley, Steven Cohen (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Ray Dalio (Trades, Portfolio).
Vertex Pharmaceuticals
Impacting the equity portfolio by -1.52%, the Endeavor Fund curbed its Vertex Pharmaceuticals (VRTX, Financial) position by 54.16%, selling 309,518 shares. The stock traded for an average per-share price of $267.55 during the quarter.
It now holds 261,967 shares total, accounting for 1.66% of the equity portfolio. GuruFocus estimates Parnassus has gained 31.85% on the investment over its lifetime.
The Boston-based biopharmaceutical company has a $74.82 billion market cap; its shares were trading around $292.57 on Monday with a price-earnings ratio of 30.80, a price-book ratio of 6.85 and a price-sales ratio of 9.53.
Based on the GF Value Line, the stock appears to be modestly undervalued currently.
GuruFocus rated Vertex’s financial strength 9 out of 10, driven by sufficient interest coverage. The robust Altman Z-Score of 15.73 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC also significantly exceeds the WACC, so value creation is occurring.
The company’s profitability also fared well with a 7 out of 10 rating. In addition to expanding margins, its returns outperform a majority of competitors. Vertex is also supported by a moderate Piotroski F-Score of 6, but the one-star predictability rank is on watch.
The Vanguard Health Care Fund (Trades, Portfolio) is the company’s largest guru shareholder with a 1.86% stake. Vertex is also being held by Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Catherine Wood (Trades, Portfolio), Elfun Trusts (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Dalio, Joel Greenblatt (Trades, Portfolio), Fisher and John Hussman (Trades, Portfolio).
Applied Materials
With an impact of -1.28% on the equity portfolio, the fund trimmed its Applied Materials (AMAT, Financial) holding by 67.96%, selling 518,826 shares. During the quarter, the stock traded for an average price of $110.04 per share.
Parnassus now holds 244,608 shares total, which represent 0.03% of the equity portfolio. GuruFocus data shows the fund has gained an estimated 130.33% on the investment so far.
Headquartered in Santa, Clara, California, the company, which provides semiconductor manufacturing equipment and services, has a market cap of $83.52 billion; its shares were trading around $96.05 on Monday with a price-earnings ratio of 12.81, a price-book ratio of 7.22 and a price-sales ratio of 3.49.
The GF Value Line suggests the stock is modestly undervalued currently.
Applied Materials’ financial strength was rated 7 out of 10 by GuruFocus on the back of adequate interest coverage and a high Altman Z-Score of 7.90. The ROIC also outshines the WACC, so value is being created.
The company’s profitability fared even better, scoring a 10 out of 10 rating. In addition to operating margin expansion, returns are outperforming versus industry peers. Applied Materials also has a high Piotroski F-Score of 7, indicating conditions are healthy, while steady earnings and revenue growth contributed to a three-star predictability rank. GuruFocus says companies with this rank return, on average, 8.2% annually.
Of the gurus invested in Applied Materials, Chris Davis (Trades, Portfolio) has the largest stake with 0.91% of its outstanding shares. Al Gore (Trades, Portfolio)’s Generation Investment, PRIMECAP Management (Trades, Portfolio), Fisher and the T Rowe Price Equity Income Fund (Trades, Portfolio) also have notable positions.
VMware
Parnassus divested of its 727,616-share position in VMware (VMW, Financial), impacting the equity portfolio by -1.56%. Shares traded for an average price of $113.56 each during the quarter.
GuruFocus estimates the fund lost 25.11% on the investment, which was established in the third quarter of 2021.
The Palo Alto, California-based cloud computing and virtualization company has a $47.09 billion market cap; its shares were trading around $111.74 on Monday with a price-earnings ratio of 28.88 and a price-sales ratio of 3.63.
According to the GF Value Line, the stock, while undervalued, is a possible value trap currently. As such, investors should do thorough research before making a decision.
GuruFocus rated VMware’s financial strength 4 out of 10. Although the company has issued new long-term debt over the past several years, it is manageable due to sufficient interest coverage. The Altman Z-Score of 1.61 also warns the company could be at risk of bankruptcy since its assets are building up at a faster rate than revenue is growing. The ROIC also surpasses the WACC.
The company’s profitability scored a 9 out of 10 rating. Although the operating margin is in decline, VMware is supported by strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 4. Despite recording consistent earnings and revenue growth, the five-star predictability rank is on watch.
With a 6.40% stake, Dodge & Cox is the company’s largest guru shareholder. Other top guru investors include PRIMECAP Management (Trades, Portfolio), Grantham, Dalio, Davis, Hussman, Mario Gabelli (Trades, Portfolio) and Fisher.
Additional trades and portfolio performance
During the three months ended June 30, the Endeavor Fund also entered a position in Ross Stores Inc. (ROST, Financial), sold out of Cerner Corp. (CERN, Financial) and PayPal Holdings Inc. (PYPL, Financial) and cut back on its Apple Inc. (AAPL, Financial) and Intel Corp. (INTC, Financial) investments.
Nearly 60% of Parnassus’ $4.45 billion equity portfolio, which is composed of 46 stocks, is invested in the health care, financial services and industrials sectors.
The fund posted a return of 31.12% in 2021, topping the S&P 500 Index’s 28.70% return.
