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3 Stocks These ESG Gurus Agree On

Summary

  • The two guru’s firms are known for their commitments to being socially responsible.
  • These stocks are their common holdings as of the second quarter.

Former Vice President Al Gore (TradesPortfolio), leader of Generation Investment Management, and Jerome Dodson (TradesPortfolio)’s Parnassus Investments may take slightly different approaches to identifying good value opportunities, but they are both known for their commitment to being socially responsible investors. As such, they have several holdings in common.

Gore’s London-based firm, which he founded in 2004 with David Blood, is dedicated to long-term investing, integrated sustainability research and client alignment. Its primary focus is on sustainability within markets, investing in companies that strategically manage their economic, social and environmental performances.

With the goal of capital appreciation, Dodson’s San Francisco-based firm invests across the capitalization spectrum in discounted companies that have strong competitive advantages, relevant products or services that will compound growth over the long term and quality management teams. It also takes the business’ environmental and societal impacts into account, avoiding companies that produce, transport or sell fossil fuels.

According to GuruFocus’ Aggregated Portfolio, a Premium feature, the two gurus both have positions in Synopsys Inc. (SNPSFinancial), Illumina Inc. (ILMNFinancial) and Guidewire Software Inc. (GWREFinancial) as of the end of the second quarter.

Synopsys

While Gore established a new 1.2 million-share stake in Synopsys (SNPSFinancial) during the quarter, Dodson’s firm left its position unchanged at 155,573 shares.

The Mountain View, California-based company, which focuses on technology for chip design, verification, IP integration, software security and quality testing, has a $51.2 billion market cap; its shares were trading around $336.24 on Thursday with a price-earnings ratio of 69.95, a price-book ratio of 9.94 and a price-sales ratio of 12.94.

The GF Value Line suggests the stock is significantly overvalued based on its historical ratios, past performance and future earnings projections.

Synopsys’ financial strength and profitability were both rated 8 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the company has a high Altman Z-Score of 10.74 that indicates it is in good standing. The return on invested capital also eclipses the weighted average cost of capital, meaning value creation is occurring as the company grows.

The company is also being supported by an expanding operating margin, strong returns on equity, assets and capital that outperform over half of its competitors and a moderate Piotroski F-Score of 6, which suggests business conditions are typical for a stable company. Consistent earnings and revenue growth have also contributed to Synopsys’ predictability rank of five out of five stars. According to GuruFocus, companies with this rank return an average of 12.1% annually over a 10-year period.

GuruFocus estimates Gore, who is the company’s largest guru shareholder with a 0.82% stake, has gained 32.47% on the investment so far, while Dodson’s firm has yielded a 102.93% return since establishing the position in the second quarter of 2020.

Other gurus who own the stock include Pioneer Investments, Catherine Wood (TradesPortfolio), Jeremy Grantham (TradesPortfolio), Ken Fisher (TradesPortfolio), Dodge & Cox, Joel Greenblatt (TradesPortfolio), Lee Ainslie (TradesPortfolio), Paul Tudor Jones (TradesPortfolio) and Baillie Gifford (TradesPortfolio).

Illumina

Parnassus Investements left its holding of Illumina (ILMNFinancial) unchanged in the second quarter with 88,399 shares. Gore reduced his 1.09 million-share position by 18.68%.

Headquartered in San Diego, the medical diagnostics and research company, which focuses on analyzing genetic variations and biological functions, has a market cap of $73.49 billion; its shares were trading around $469.03 on Thursday with a price-earnings ratio of 89.96, a price-book ratio of 13.32 and a price-sales ratio of 17.46.

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

GuruFocus rated Illumina’s financial strength 6 out of 10. In addition to adequate interest coverage, the company is supported by a robust Altman Z-Score of 10.89 even though assets are building up at a faster rate than revenue is growing. The WACC is also overshadowed by the ROIC, indicating value creation is occurring.

The company’s profitability scored a 9 out of 10 rating. Even though the operating margin is in decline, the returns outperform over half of its industry peers. Illumina also has a high Piotroski F-Score of 7, suggesting business conditions are healthy, and steady earnings and revenue growth contributed to a 3.5-star predictability rank. GuruFocus says companies with this rank return an average of 9.3% annually.

GuruFocus data shows Gore has gained an estimated 37.85% on the investment since establishing it in the fourth quarter of 2019. Dodson’s firm has gained approximately 45.15% on the investment since the third quarter of 2019.

With 14.51% of outstanding shares, Baillie Gifford (TradesPortfolio) is the company’s largest guru shareholder. Frank Sands (TradesPortfolio), the Vanguard Health Care Fund (TradesPortfolio), PRIMECAP Management (TradesPortfolio), Ron Baron (TradesPortfolio), Pioneer Investments, the Parnassus Endeavor Fund (TradesPortfolio) and Ray Dalio (TradesPortfolio) also have significant positions in Illumina.

Guidewire Software

Gore upped his Guidewire Software (GWREFinancial) position by 49.27% in the second quarter, while Dodson’s firm established a 150,889-share holding.

The San Mateo, California-based software company, which offers a platform for property and casualty insurance carriers, has a $9.78 billion market cap; its shares were trading around $117.62 onThursdaywith a price-book ratio of 6.3 and a price-sales ratio of 12.97.

Based on the GF Value Line, the stock appears to be modestly overvalued currently.

Guidewire’s financial strength was rated 5 out of 10 by GuruFocus. The company has a high Altman Z-Score of 9.38, indicating it is in good standing even though assets are building up at a faster pace than revenue is growing.

The company’s profitability scored a 6 out of 10 rating even though its margins and returns are negative and underperform over half of its competitors. Guidewire also has a low Piotroski F-Score of 3, indicating operations are in poor shape, as well as a one-star predictability rank. GuruFocus data shows companies with this rank return an average of 1.1% annually.

GuruFocus estimates Gore has gained 4.74% on his investment since establishing it in the first quarter. Dodson has gained approximately 12.37%.

Of the gurus invested in Guidewire, Baron has the largest stake with 6.87% of outstanding shares. Other top guru shareholders include Pioneer Investments, Wallace Weitz (TradesPortfolio), Dalio and Ainslie.

Portfolio composition

Gore’s $24.12 billion equity portfolio, which is composed of 40 stocks as of June 30, is heavily invested in the technology and health care sectors.

Similarly, the Parnassus Fund’s $1.13 billion equity portfolio, which is composed of 45 holdings, is largely invested in the technology sector, followed by smaller positions in the health care and consumer cyclical spaces.

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