Top Q2 Buys of the Parnassus Endeavor Fund

The Parnassus Endeavor Fund (Trades, Portfolio) recently released its portfolio updates for the second quarter of 2020, which ended on June 30.

The fund follows a socially responsible value-based strategy, investing in a wide range of deeply discounted, out-of-favor stocks that have long term competitive advantages and relevancy, quality management and positive scores on ESG (Environmental, Social and Corporate Governance) criteria. The fund’s portfolio managers are Jerome Dodson (Trades, Portfolio) (the Chairman of Parnassus Investments) and Billy Hwan (the Senior Research Analyst).

Based on its investing criteria, the fund cut back on several positions during the quarter, including VF Corp. (VFC), FedEx (FDX) and Bank of America (BAC), and established four new holdings in Discover Financial Services (NYSE:DFS), Seagate Technology PLC (NASDAQ:STX), SVB Financial Group (NASDAQ:SIVB) and Intel Corp. (NASDAQ:INTC), though its biggest buy was an addition to its existing holding in Capital One Financial Corp. (NYSE:COF).

Discover Financial Services

The Parnassus Endeavor Fund (Trades, Portfolio)’s biggest new by was 1,000,000 shares of Discover Financial Services, which had a 1.95% impact on the equity portfolio. During the quarter, shares traded for an average price of $43.74.

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Based in Riverwoods, Illinois, Discover is a financial services company that owns Discover Bank, which is perhaps most famous for its credit cards but is also involved in the full range of traditional banking activities.

On July 17, shares of Discover traded around $49.02 for a market cap of $15.05 billion and a price-earnings ratio of 7.33. According to the Peter Lynch chart, the stock is trading below its intrinsic value.

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GuruFocus gives the stock a financial strength rating of 3 out of 10 and a profitability rating of 4 out of 10. The cash-debt ratio of 0.38 is higher than the industry median of 0.26, but the debt-to-equity ratio of 2.7 is lower than 70.24% of competitors. The full-year 2019 return on equity of 18.96% was higher than 87.61% of competitors, though the metric has dropped to -2.90% as of the most recent quarter’s end.

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Seagate Technology PLC

The fund also established a new holding of 700,000 shares in Seagate Technology PLC, impacting the equity portfolio by 1.32%. Shares traded for an average price of $50.19 during the quarter.

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Seagate is a data storage company incorporated in Ireland and headquartered in California. Its hard drives and other products enable exponential data growth.

On July 17, shares of Seagate traded around $48.14 for a market cap of $12.38 billion and a price-earnings ratio of 7.19. According to the Peter Lynch chart, the stock is trading below its intrinsic value.

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GuruFocus gives the stock a financial strength rating of 5 out of 10 and a profitability rating of7 out of 10. The cash-debt ratio of 0.39 is lower than 77.35% of competitors, but the Altman Z-Score of 2.16 indicates that the company is not in immediate danger of bankruptcy. The ROIC (return on invested capital) is higher than the WACC (weighted average cost of capital), indicating profitability.

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SVB Financial Group

In a much smaller bid, the fund invested in 10,000 shares of SVB Financial Group, impacting the equity portfolio by 0.08%. During the quarter, shares traded for an average price of $191.80.

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SVB Financial Group is a bank holding company based in Santa Clara, California. It is the owner of the Silicon Valley Bank chain.

On July 17, shares of SVB traded around $217.66 for a market cap of $11.23 billion and a price-earnings ratio of 11.61. According to the Peter Lynch chart, the stock is trading slightly below its intrinsic value.

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GuruFocus gives the stock a financial strength rating of 3 out of 10 and a profitability rating of 5 out of 10. The cash-debt ratio of 2.74 is higher than 69.45% of competitors, but as a company operating in the banks industry, it has a high level of industry risk during recessions. The revenue and net income of the company have skyrocketed in recent years.

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Intel Corp

After selling out of a previous investment in Intel Corp in the fourth quarter of 2018, the fund has established a new position worth 10,000 share in the company. The trade impacted the equity portfolio by 0.02%. Shares traded for an average price of $59.71 during the quarter.

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Intel is a semiconductor manufacturing company based in Santa Clara, California. The company is the world’s largest producer of PC microprocessors, and its mobile processors have been a key driver of growth in recent years.

On July 17, shares of Intel traded around $60.13 for a market cap of $254.93 billion and a price-earnings ratio of 11.67. According to the Peter Lynch chart, the stock is trading below its intrinsic value.

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GuruFocus gives the stock a financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. While the cash-debt ratio of 0.52 is well below the industry median of 1.46, the Altman Z-Score of 3.85 indicates that the company is safe from bankruptcy. The ROIC of the company exceeds its WACC, indicating profitability.

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Capital One Financial Corp

The fund added 1,000,000 shares to its investment in Capital One Financial Corp., increasing the holding by 100% for a total of 2,000,000 shares. The trade had a 2.44% impact on the equity portfolio. During the quarter, shares traded for an average price of $62.04.

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Capital One Financial Corp, headquartered in McLean, Virginia, is the bank holding company that contains the Capital One chain of banks and financial services.

On July 17, shares of Capital One traded around $61.74 for a market cap of $28.16 billion and a price-earnings ratio of 12.18. According to the Peter Lynch chart, the stock is trading near its intrinsic value.

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GuruFocus gives the stock a financial strength rating of 3 out of 10 and a profitability rating of 4 out of 10. The cash-debt ratio of 0.45 is higher than the industry median of 0.26, while the debt-to-Ebitda ratio of 1.97 is better than 74.74% of competitors. The company has managed to grow its revenue and net income in recent years.

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Portfolio overview

As of the quarter’s end, the Parnassus Endeavor Fund (Trades, Portfolio) held common stock positions in 26 companies valued at $2.57 billion. The top holdings were Micron Technology Inc. (MU) with 12.82% of the equity portfolio, Applied Materials Inc. (AMAT) with 12.46% and Charles Schwab Corp. (SCHW) with 6.49%.

In terms of sector weighting, the fund was most invested in technology, financial services and industrials.

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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. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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