Wedgewood Partners is a St. Louis-based mutual fund which was founded in 1988 with the goal of providing investors a superior approach to managing their investments. The combined focus on large-cap growth stocks together with the ‘invest as business owners’ orientation has helped the fund outperform both the S&P 500 and Russell 1000 over a long-term period. According to the official web-page of Wedgewood Partners, the fund has returned net of fees 7.60% on average per annum during the last 15 years, while the S&P 500 gained an average of 4.87% during the same period. However, during the second quarter of 2015, Wedgewood Partners’ Composite portfolio returned negative 1.45% net of fees, while the S&P 500 was slightly positive, with gains of 0.28%. Of course, we cannot judge such prominent and experienced investors by small time frames like these, therefore, let’s better concentrate on the stock picking wisdom and knowledge that one can find in the latest Wedgewood letter to investors. In this article would like to review the four stocks presented for analysis by the fund, which are QUALCOMM Inc (NASDAQ:QCOM), Varian Medical Systems Inc (NYSE:VAR), Perrigo Company (NYSE:PRGO) and LKQ Corporation (NASDAQ:LKQ).
The first in the list is QUALCOMM Inc (NASDAQ:QCOM), a $104 billion market-cap manufacturer of digital communications products. During the second quarter of this year, the stock continued to disappoint its investors, closing with a 7.21% loss. Despite that, the shares of the company still took the leading position in terms of weighting in the portfolio of Wedgewood. According to the letter, QUALCOMM Inc (NASDAQ:QCOM) offers a very attractive risk-reward ratio, as compared to the closest investment alternatives. Earlier this year a key overhang was removed after Qualcomm settled an investigation by China’s National Development and Reform Commission regarding alleged antimonopoly violations. As Qualcomm’s intellectual property is increasingly enforced across China’s emerging smartphone OEMs, Wedgewood estimates that the settlement could represent 5% to 10% upside for earnings over the next few years. According to our database, JANA Partners, led by Barry Rosenstein, finished the first quarter of the year with a newly initiated activist position of 28.54 million shares of QUALCOMM Inc (NASDAQ:QCOM), valued at $1.98 billion, and Rosenstein has already been active in pushing for positive change at the company.
Varian Medical Systems Inc (NYSE:VAR) has been owned by Wedgewood Partners since 2005. Over the last quarter, the value of its equity dropped by 6.79%, making the total year-to-date gains equal to 1.38%. According to Wedgewood’s letter, the company’s non-core business of Imaging Components, which brings in around 20% of revenues, was buffeted by a host of macro pressures, including foreign exchange, as well as weakness in governmental security inspection budgets, which was mostly contained to petroleum-exporting countries. Wedgewood Partners expects these headwinds to abate over the next 12 months and for Varian Medical Systems Inc (NYSE:VAR)’s core competency in Oncology Systems to continue driving results, but the relative valuation of Varian Medical Systems Inc (NYSE:VAR)’s stock, combined with its relatively attractive historical valuation, allows the fund to keep holding the position. David Blood and Al Gore’s Generation Investment Management held some 4.5 million shares equivalent to $423.43 million in monetary terms.
After a 21.75% appreciation in the second quarter, LKQ Corporation (NASDAQ:LKQ) became a top contributor to the portfolio of Wedgewood during the second quarter, as the company’s execution returned to form. As said in the letter, with around $7 billion in revenues, LKQ Corporation (NASDAQ:LKQ) is the largest distributor of recycled, refurbished, and aftermarket automotive replacement parts for collision and mechanic repairs in North America and Europe. These days, the company’s strategy is primarily focused on eliminating costs and redundancies and increasing fulfillment rates to end customers, which together with relatively affordable multiples, presents an interesting investment case. Matrix Capital Management, headed by David Goel and Paul Ferri, finished the first three months of the year with around 4.06 million shares of LKQ Corporation (NASDAQ:LKQ) valued at $103.70 million.
Perrigo Company (NYSE:PRGO) was also among the top-performing holdings of Wedgewood’s portfolio during the quarter, after receiving a hostile takeover offer from generic drug manufacturer, Mylan Inc (NASDAQ:MYL), based in the Netherlands. Upon the news, Perrigo’s share price spiked almost 20%. In general, Wedgewood remains confident in Perrigo’s unrivaled business model as a generic drug manufacturer, and will continue to closely monitor the company’s valuation, waiting for some merger‐related weakness to load on more shares. Following a 373% increase in its position in Perrigo Company (NYSE:PRGO), Jacob Gottlieb’s Visium Asset Management held 2.00 million shares with a value of $330.86 million on March 31.
Disclosure: None.
