Top 1st-Quarter Buys of Jerome Dodson's Parnassus Fund

Fund's top buys for the quarter include Agilent, Square Continue reading... Read More...

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jerome Dodson (Trades, Portfolio)’s Parnassus Fund recently disclosed its portfolio updates for the first quarter of 2020. The turnover rate for the quarter was 25%; the fund sold out of its common stock holdings in 11 companies and established new holdings in eight companies.” data-reactid=”12″>Jerome Dodson (Trades, Portfolio)’s Parnassus Fund recently disclosed its portfolio updates for the first quarter of 2020. The turnover rate for the quarter was 25%; the fund sold out of its common stock holdings in 11 companies and established new holdings in eight companies.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The Parnassus Fund's strategy is to seek long-term capital appreciation through securities that have wide moats, relevancy over the long term, quality management teams and a market price below intrinsic value. It is a contrarian fund that focuses on out-of-favor companies, with the exclusion of those involved in the production of fossil fuels. Dodson, who founded Parnassus Investments in 1984, serves as the firm's president and the portfolio manager of the Parnassus Fund, the Parnassus Asia Fund and the Parnassus Endeavor Fund (Trades, Portfolio).” data-reactid=”19″>The Parnassus Fund’s strategy is to seek long-term capital appreciation through securities that have wide moats, relevancy over the long term, quality management teams and a market price below intrinsic value. It is a contrarian fund that focuses on out-of-favor companies, with the exclusion of those involved in the production of fossil fuels. Dodson, who founded Parnassus Investments in 1984, serves as the firm’s president and the portfolio manager of the Parnassus Fund, the Parnassus Asia Fund and the Parnassus Endeavor Fund (Trades, Portfolio).

As of the quarter’s end, the equity portfolio consisted of holdings in 34 companies valued at $753 million. The top holdings were Microsoft Corp. (MSFT) at 7.04%, Mondelez International Inc. (MDLZ) at 4.7% and Nvidia Corp. at 4.62%. In terms of sector weighting, the fund is most invested in technology, health care and industrials.

Based on the above investing criteria, the fund’s top new buys in the first quarter of 2020 were KLA Corp. (NASDAQ:KLAC), Agilent Technologies Inc. (NYSE:A), Square Inc. (NYSE:SQ) and IDEXX Laboratories Inc. (NASDAQ:IDXX).

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="KLA” data-reactid=”33″>KLA

The fund’s biggest new buy for the quarter was 188,831 shares of KLA Corp., a company that it owned shares in previously before selling out of the position in the second quarter of 2018. The trade had a 3.61% impact on the equity portfolio. Shares traded at an average price of $161.82 during the quarter.

KLA is a semiconductor company headquartered in Milpitas, California. It designs and manufactures innovative process control and yield management systems for the semiconductor industry and other nanoelectronics businesses.

On April 14, shares of KLA traded around $161.73 for a market cap of $25.35 billion and a price-earnings ratio of 22.64. According to the Peter Lynch chart, the stock is trading slightly above its intrinsic value.

GuruFocus gives KLA a financial strength rating of 5 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 0.48 is lower than 73.38% of competitors, but the Altman Z-Score of 3.7 indicates that the company is safe from bankruptcy. The operating margin is 26.24%, and the company has grown its revenue and net income in recent years.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Agilent Technologies” data-reactid=”71″>Agilent Technologies

The fund invested in 326,840 shares of Agilent Technologies, impacting the equity portfolio by 3.11%. During the quarter, shares traded at an average price of $80.63.

Based in Santa Clara, California, Agilent Technologies is a lab instrument manufacturing company that was spun off from Hewlett-Packard in 1999. Its products include analytical instruments for a range of lab applications, from chromatography to life sciences and clinical and diagnostic testing. The company also provides lab software and consulting services.

On April 14, shares of Agilent traded around $78.81 for a market cap of $24.34 billion and a price-earnings ratio of 32.47. The Peter Lynch chart suggest that the stock is trading slightly above its fair value.

Agilent has a GuruFocus financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.5 is on the low side for the industry, but the current ratio of 1.64 and Altman Z-Score of 4.09 indicate financial stability. The operating margin of 17.3% beats 83.33% of competitors, and revenue and net income have shown moderate increases in recent years.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Square” data-reactid=”102″>Square

The fund also purchased 338,588 shares of Square, which had a 2.36% impact on the equity portfolio. Shares traded at an average price of $68.53 during the quarter.

Square is a financial services company based in San Francisco. It is also a merchant services aggregator and a mobile payment platform. It mainly sells software and hardware products in these fields, though it has also expanded into business services such as websites and order delivery.

On April 14, Square’s shares traded around $62.41 for a market cap of $27.16 billion and a price-earnings ratio of 80. GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rating of 4 out of 10.

The cash-debt ratio of 2.06, current ratio of 1.9 and interest coverage of 7.13 indicate that the company has plenty of funds to pay its debts. The Altman Z-Score of 7.04 also indicates that Square is safe from bankruptcy.

The operating margin of 3.26% is average for the industry, but the return on capital of 59.94% is higher than 68.98% of competitors. Revenue and net income have shown explosive growth since the company first became publicly traded, and the company reported its first full-year profit in 2019.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="IDEXX Laboratories” data-reactid=”130″>IDEXX Laboratories

The fund made a new investment of 72,901 shares of IDEXX Laboratories, which had a 2.35% impact on the equity portfolio. During the quarter, shares traded at an average price of $261.78.

IDEXX Laboratories is a multinational veterinary services company based in Westbrook, Maine. It develops, manufactures and distributes products for and provides services to domestic and livestock veterinary practices. It also operates in the water testing and dairy markets.

On April 14, shares of IDEXX traded around $263.01 for a market cap of $22.42 billion and a price-earnings ratio of 53.89. GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 10 out of 10.

The cash-debt ratio of 0.08 and current ratio of 0.94 indicate that the company will likely be in trouble if it needs short-term liquidity. However, the Altman Z-Score of 11.36 indicates the company is unlikely to go bankrupt, as does the interest coverage of 17.8.

In terms of profitability, the operating margin of 22.97% and return on capital of 76.95% are outperforming 90.28% of competitors. Revenue and net income have steadily increased throughout the company’s history, with little change during times of economic recession.

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.