Tracking David Rolfe’s Wedgewood Partners Portfolio – Q4 2019 Update

This article is first in a series that provides an ongoing analysis of the changes made to Wedgewood Partners’ 13F stock portfolio on a quarterly basis. It is based on David Rolfe’s regulatory 13F Form filed on 02/14/2020. The 13F portfolio value decreased ~13%, from $1.13B to $987M, this quarter. The holdings are concentrated, with recent 13F reports showing around 30 positions. There are 21 securities that are significantly large (more than ~0.5% of the portfolio each), and they are the focus of this article. The largest five stakes are Apple Inc. (AAPL), Edwards Lifesciences (EW), Facebook (FB), Alphabet (GOOGL, GOOG), and Visa (V). They add up to 42% of the portfolio.

David Rolfe founded Wedgewood Partners in 1988. The ~$2.2B AUM is invested in a singly focused strategy of holding around 20 businesses in the large-cap growth area that add value over a multi-year, multi-cycle time frame. They have generated significant alpha since the strategy was incepted in 1992: 11.62% annualized returns over the 28-year period, compared to 9.97% annualized for the S&P 500 Index and 9.75% annualized for the Russell 1000 Growth Index. Their clients are primarily institutions and high net worth investors. David Rolfe also sub-advises Riverpark/Wedgewood Fund (RWGIX) as portfolio manager, a mutual fund incepted in 2010.

New Stakes

Bristol Myers Squibb (BMY): BMY is a 2.55% of the portfolio position that came about as a result of the acquisition of Celgene Corporation. BMY acquired CELG in a cash-and-stock deal ($50 cash, one share of BMY, and one CVR for each share of Celgene held) that closed in November. Wedgewood had a 394K share position in Celgene for which they received these shares. The stock currently trades at $49.35. The quarter also saw minor trimming.

S&P Global Inc. (SPGI): The 2.38% SPGI stake was established during the quarter at prices between $236 and $275, and the stock currently trades just below the low end of that range at $227. Their buy thesis was that the ratings business and the indices segment have significant tailwinds. The ratings business is a duopoly with Moody’s, and they both benefit from perpetual low interest rates. The indices segment has very low capital requirements and benefits from substantial capital inflows into ETFs.

FleetCor Technologies (FLT): FLT is a 1.79% of the portfolio position purchased this quarter at prices between $279 and $309. The stock currently trades well below the low end of that range at ~$212. They view the business as undervalued relative to other payments businesses in the portfolio – Visa and PayPal. FleetCor is growing at similar rates but is trading at a discount.

Copart Inc. (CPRT): The 1.78% CPRT stake was established during the quarter at prices between $77 and $91, and the stock is now at $71.59. The buy thesis is on the idea that automotive salvage and auction industry is a duopoly with significant tailwinds.

Stake Disposals

Celgene Inc. (CELG): A ~3.5% position in Celgene was purchased in Q2 2017 at prices between $115 and $135. The stake was eliminated as the business got acquired by Bristol-Myers Squibb in a cash-and-stock deal ($50 cash, one share of BMY, and one CVR for each share of Celgene held) that closed in November.

Note: Their bullish thesis on Celgene was based on a projection of ~$100B free cash flow in the 2020s decade fueled by an unmatched late-stage pipeline.

Charles Schwab (SCHW): SCHW was a fairly large position established in Q1 2016 at prices between $23 and $29. The position was sold down to a minutely small stake in H1 2019 at prices between $42 and $48. The stock is now at ~$34. They sold as they believed there was a high probability that monetary tightening, which acted as a tailwind, would turn into a headwind going forward.

Ulta Beauty (ULTA): ULTA was a fairly large ~5% of the portfolio position established in Q3 2018 at prices between $235 and $286. The stake was disposed over the last three quarters at prices between $225 and $366. The stock currently trades at ~$192. They sold as they believed Ulta Beauty’s growth was slowing and their expense structure was not set up well for that phase.

Stake Increases

Electronic Arts (EA): EA is a 4.70% of the portfolio stake established in Q2 and Q3 2019 at prices between $87.50 and $103. The stock currently trades at ~$90. This quarter also saw a minor increase. They expect double-digit earnings growth over the next several years as margins expand from monetizing sunk costs through subscription service of legacy titles.

Nvidia Corp. (NVDA): NVDA is a 4.22% of the portfolio position purchased in Q3 2019 at prices between $149 and $184. This quarter saw a ~25% stake increase at prices between $171 and $239. The stock currently trades at ~$246.

Note: Wedgewood believes Nvidia’s business has bottomed. Also, crypto-mining related revenue is approaching zero. With that risk removed, Nvidia should be able to sustain faster growth in the next few years.

Motorola Solutions (MSI): MSI is a 3.79% of the portfolio stake purchased in Q2 2019 at prices between $141 and $167. The last two quarters have also seen minor buying. The stock currently trades just below their purchase price range at ~$134. The buy thesis was based on valuation – multiples should expand as low-double digit profit growth materializes over the next several years.

CDW Corp. (CDW): The 2.90% of the portfolio position in CDW was established last quarter at prices between $107 and $124, and increased by ~20% this quarter at prices between $120 and $145. The stock currently trades well below the low end of those ranges at ~$92.

Stake Decreases

Apple Inc.: AAPL is currently the largest position in the portfolio at ~10%. The original position was purchased in the 2005-2006 time frame at prices between $5 and $13. The position was since sold down, but the 2012-2013 time frame saw a 4x stake increase at prices between ~$60 and ~$100. The last five years had seen the stake reduced by ~85% at prices between $71 and $228 through consistent selling almost every quarter. The last four quarters have also seen another ~60% selling at prices between $148 and $298. The stock is now at ~$246. They are harvesting huge long-term gains.

Edwards Lifesciences: EW is a top-three ~9% of the portfolio stake. It was established in Q1 2017 at prices between ~$90 and ~$98. The next year saw the position reduced by ~40% at prices between $115 and $174. That was followed with another ~55% selling over the last four quarters at prices between $149 and $246. The stock currently trades at ~$191.

Facebook Inc.: FB is a top-three ~8% of the portfolio position purchased in Q1 2018 at prices between $158 and $190. The next three quarters saw minor selling, while last year there was a ~50% reduction at prices between $138 and $209. The stock currently trades at ~$156.

Alphabet Inc.: The top-five 7.85% GOOGL stake was a small position first purchased in 2007 at prices between ~$233 and ~$356. The next two years saw only minor adjustments. There was a ~6x stake increase in the 2010-2013 time frame at prices between ~$234 and ~$553. That was followed with a ~85% reduction over the 2015-2018 period at prices between ~$500 and ~$1110. The last four quarters have also seen a ~30% selling at prices between $1065 and $1362. The stock is now at $1102.

Visa Inc.: Visa is a top-five 7.72% of the portfolio position built during the 2008-2010 time frame at prices between ~$15 and ~$24. Visa had an IPO in 2008, and the first purchases were made soon after. 2013-2014 saw a stake doubling at prices between $39 and $68. The position saw a ~30% selling in 2015 at prices between $64 and $80, and that was followed with ~70% selling during the 2017-2018 time frame at prices between $82 and $150. The last four quarters have also seen a ~55% further reduction at prices between $134 and $190. The stock is currently at ~$162.

Booking Holdings (BKNG): The large 6.83% BKNG stake was established in 2012 at prices between $480 and $762. 2014 saw the original stake almost doubled at prices between $1064 and $1358. The position has seen selling since, with the stake reduced by ~75% over the 2016-2018 time frame at prices between $1015 and $2175. The last four quarters have also seen a ~40% selling at prices between $1655 and $2073. The stock is now at ~$1366.

Tractor Supply (TSCO): TSCO is a fairly large 5.71% of the portfolio position first purchased in Q4 2016 at prices between $62 and $77. Next year saw a one-third stake increase at prices between $51 and $79, while in 2018, there was ~45% selling at prices between $58 and $97. The last four quarters have also seen a similar reduction at prices between $82 and $113. The stock currently trades at ~$77.

Fastenal Inc. (FAST): The 4.68% FAST stake was established in Q4 2016 at prices between $19 and $24.50. There was a minor increase next year, but in 2018, the position was reduced by ~45% at prices between $24 and $30. The last four quarters have also seen a ~20% selling at prices between $26 and $37. The stock is now at $30.23.

PayPal Holdings (PYPL): PYPL is a 4.60% of the portfolio position purchased in Q3 2015 at prices between $33 and $39 immediately following its spinoff from eBay (EBAY). The next two years saw an ~80% reduction at prices between $32 and $79, and that was followed with another ~60% reduction over the last two years at prices between $74 and $120. The stock currently trades at $95.71.

Starbucks Inc. (SBUX): The ~4% SBUX stake was purchased in Q1 2019 at prices between $63 and $75. The last three quarters have seen a ~45% selling at prices between $74 and $99. The stock is now at $65.81.

Ross Stores (ROST): The original ROST stake was established in 2016 when around 1.84M shares were purchased at prices between $52 and $70. 2018 saw the position reduced by ~55% at prices between $75 and $103. The last four quarters saw another similar reduction at prices between $85 and $117. The stock currently goes for ~$81.

Alcon Inc. (ALC): ALC is a 2.67% of the portfolio position purchased in Q2 2019 soon after its spin-off from Novartis (NVS). The leader in ophthalmic surgical devices started trading at ~$55 per share and currently goes for $47.59. The last quarter had seen a substantial stake increase, while this quarter there was a corresponding reduction.

Berkshire Hathaway (BRK.A, BRK.B): BRK.B position has been held continuously since 1998, except for a brief period in 2010 when they sold it following a spike in the share price. The 2011-2014 time frame saw the stake rebuilt to a huge ~4M share position at prices between $66 and $152. The position has since been sold down. The bulk of the selling was in the 2015-2016 time frame, when there was a ~75% reduction at prices between $125 and $165. The last three years have seen the stake reduced to a very small 0.91% of the portfolio stake at prices between ~$160 and ~$225. The stock currently trades at ~$181.

Note: In 2016, their client letter indicated a very bullish stance on BRK.B, saying, “Berkshire Hathaway has become what capitalism may have never contemplated, a perpetual growing cash flow machine”. The sentiment took an about-turn in Q3 2019, when their client letter said, “mistakes such as IBM, Lubrizol, Precision Castparts and Kraft do not inspire confidence that Buffett & Co. are still at the top of their game”.

C.H. Robinson Worldwide (CHRW): CHRW was a fairly large stake established in Q3 2018 at prices between $84 and $100. The last five quarters saw the position almost sold out at prices between $75 and $97. The stock currently trades at $62.29.

Kept Steady

None.

The spreadsheet below highlights changes to David Rolfe’s US stock holdings in Q4 2019:

Disclosure: I am/we are long BRK.B, GOOGL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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