David Rolfe Axes TreeHouse Foods, Exxon Mobil in 4th Quarter

Wedgewood reports quarterly portfolio

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Feb 19, 2018
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David Rolfe (Trades, Portfolio), chief investment officer at Wedgewood Partners, released his fourth-quarter portfolio last week, disclosing he exited his positions in TreeHouse Foods Inc. (THS, Financial) and Exxon Mobil Corp. (XOM, Financial).

Rolfe, who joined the firm in 1992 and helped shape Wedgewood’s strategy, takes a patient and focused approach to long-term investing, combining tenets of both growth and value investing. According to its website, the firm believes significant long-term wealth is created by investing as “owners” of companies. As such, they look to invest in profitable companies with a dominant product or service that can maintain a consistent level of revenue, earnings and dividend growth and have a strong, shareholder-friendly management team.

TreeHouse Foods

Rolfe sold his remaining 10,350 shares of the Oak Brook, Illinois-based food processing company for an average price of $53.65 per share, impacting the portfolio by 0.02%. GuruFocus estimates he has lost 20% on the investment since the third quarter of 2016.

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The private label food and beverage company, which owns brands like Bay Valley Foods, Flagstone Foods and E.D. Smith, has a market cap of $2.19 billion; its shares closed at $38.28 on Friday with a forward price-earnings (P/E) ratio of 14.41, a price-book (P/B) ratio of 0.87 and a price-sales (P/S) ratio of 0.36.

The Peter Lynch chart below shows the stock is trading above its fair value, suggesting it is overpriced.

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GuruFocus rated TreeHouse’s financial strength 4 out of 10. Its low Altman Z-score of 1.54 suggests the company is in financial distress, which could lead to bankruptcy in the near future. The company’s profitability and growth is rated a fairly strong 6 out of 10 despite declining operating margins and a moderate Piotroski F-score of 4.

Of the gurus invested in the company, Ken Fisher (Trades, Portfolio) has the largest position with 1.27% of outstanding shares. While NWQ Managers (Trades, Portfolio) reduced its holding during the quarter, Paul Tudor Jones (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) established positions. Diamond Hill Capital (Trades, Portfolio) also owns the stock.

Exxon Mobil

The investor exited his position in the oil giant, which he had just established the quarter before. He sold all 2,866 shares for an average price of $82.70 per share. The trade had an impact of 0.01% on the portfolio. GuruFocus estimates he gained 4% on the investment.

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The Dallas-based oil and gas company, which is the world’s fifth-largest chemical producer by sales, has a market cap of $324.45 billion; its shares closed at $76.54 on Friday with a price-earnings ratio of 24.93, a price-book ratio of 1.78 and a price-sales ratio of 1.28.

According to the Peter Lynch chart below, the stock is overpriced as it is trading above its fair value.

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Despite issuing new debt over the past several years, Exxon has good interest coverage and a strong Altman Z-score of 3.66. As a result, the company’s financial strength was rated 6 of 10 by GuruFocus. Its profitability and growth was rated 5 out of 10 as the oil giant’s operating margins have been declining over the past five years. Its Piotroski F-score of 7, however, indicates it is in a very healthy financial situation.

With 0.3% of outstanding shares, First Eagle Investment (Trades, Portfolio) is the company’s largest guru shareholder. Other top guru shareholders include Jim Simons (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Pioneer Investments, Fisher and Richard Pzena (Trades, Portfolio), among others.

Other trades

While Rolfe reported no new buys for the quarter, he did add to his positions in Celgene Corp. (CELG, Financial) and AT&T Inc. (T, Financial).

He also reduced a myriad of other positions, including PayPal Holdings Inc. (PYPL, Financial), Berkshire Hathaway Inc. (BRK.B, Financial), Apple Inc. (AAPL, Financial), Alphabet Inc. (GOOGL, Financial), Visa Inc. (V, Financial) and Fastenal Co. (FAST, Financial), among others.

The current portfolio of 36 stocks is largely composed of securities in the technology and financial services sectors. According to its fact sheet, the firm was underperforming the S&P 500 Index as of Sept. 20, 2017 with a return of 13.51%.

Disclosure: No positions.