Spiros Segalas (Trades, Portfolio), manager of the Harbor Capital Appreciation Fund, disclosed his third-quarter portfolio earlier this week.
Part of Chicago-based Harbor Funds, the guru's fund primarily invests in companies with market caps of at least $1 billion at the time of purchase. He focuses on companies that have strong balance sheets and earnings performance, good sales momentum and growth outlook, a history of high profitability, a unique market position and a capable, committed management team.
Based on these criteria, Segalas established five new positions, divested of seven holdings and added to or curbed a number of other investments during the quarter. Notable trades included new stakes in Match Group Inc. (MTCH, Financial) and Spotify Technology SA (SPOT, Financial), reductions of the Alibaba Group Holdings Ltd. (BABA, Financial) and Salesforce.com Inc. (CRM, Financial) holdings and a boost in the PayPal Holdings Inc. (PYPL, Financial) position.
Match Group
The guru invested in 4.46 million shares of Match Group, allocating 1.23% of the equity portfolio to the stake. The stock traded for an average price of $88.43 per share during the quarter.
The Dallas-based company, which owns and operates popular dating services like Tinder, Match.com, Hinge and PlentyOfFish, has a $28.45 billion market cap; its shares were trading around $109.42 on Wednesday with a price-earnings ratio of 1,022.61 and a price-sales ratio of 5.28.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 1 out of 10 also supports this assessment since the share price and price ratios are all near 10-year highs.
GuruFocus rated Match's financial strength 3 out of 10. As a result of issuing approximately $2.6 billion in new long-term debt over the past three years, the company has poor interest coverage. In addition, the Altman Z-Score of 1.27 warns it could be in danger of going bankrupt since its assets are also building up at a faster rate than revenue is growing.
The company's profitability fared better, scoring a 7 out of 10 rating on the back of an expanding operating margin and returns that are outperforming at least half of its competitors. Match also has a low Piotroski F-Score of 3, which implies business conditions are in poor shape. Due to recording a loss in operating income over the past several years, its predictability rank of one out of five stars is also on watch. According to GuruFocus, companies with this rank typically return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Match, Pioneer Investments (Trades, Portfolio) has the largest stake with 0.08% of outstanding shares. Paul Tudor Jones (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) also own the stock.
Spotify Technology
Segalas picked up 1.54 million shares of Spotify, dedicating 1.06% of the equity portfolio to the stake. During the quarter, shares traded for an average price of $218.07 each.
The Swedish company, which provides a popular music streaming service, has a market cap of $45.96 billion; its shares were trading around $245.36 on Wednesday with a price-book ratio of 19.23 and a price-sales ratio of 5.61.
According to the price chart, the stock is trading above both the median price-sales value and the median price-book ratio.
Spotify's financial strength was rated 7 out of 10 by GuruFocus. In addition to a stable cash-debt ratio of 2.92, the company is supported by a robust Altman Z-Score of 7.23, which suggests it is in good standing.
The company's profitability did not fare as well, scoring a 1 out of 10 rating on the back of negative margins and returns that underperform over half of its industry peers. Spotify also has a low Piotroski F-Score of 3.
With a 1.7% stake, Chase Coleman (Trades, Portfolio) is Spotify's largest guru shareholder. Other top guru investors are Jim Simons (Trades, Portfolio)' Renaissance Technologies, Ron Baron (Trades, Portfolio), Pioneer, Julian Robertson (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio).
Alibaba
With an impact of -1.18% on the equity portfolio, the investor curbed his stake in Alibaba by 35.85%, selling 1.76 million shares. The stock traded for an average per-share price of $224.10 during the quarter.
Segalas now holds 3.14 million shares, which represent 2.12% of the equity portfolio. GuruFocus estimates he has gained 125.35% on the investment.
The Chinese e-commerce company has a $784.37 billion market cap; its shares were trading around $289.97 on Wednesday with a price-earnings ratio of 31.3, a price-book ratio of 6.87 and a price-sales ratio of 10.05.
Based on the Peter Lynch chart, the stock appears to be overvalued.
Driven by a good cash-debt ratio, a comfortable level of interest coverage and a high Altman Z-Score of 8.67, GuruFocus rated Alibaba's financial strength 8 out of 10.
The company's profitability scored a 9 out of 10 rating. Although the operating margin is in decline, Alibaba has strong returns that outperform a majority of competitors as well as a high Piotroski F-Score of 7, which indicates business conditions are healthy. Consistent earnings and revenue growth contributed to the 2.5-star predictability rank. GuruFocus says companies with this rank typically return an average of 7.3% annually.
Ken Fisher (Trades, Portfolio) is Alibaba's largest guru shareholder with 0.5% of its outstanding shares. PRIMECAP Management (Trades, Portfolio), Frank Sands (Trades, Portfolio), Pioneer, Coleman, Chris Davis (Trades, Portfolio), David Tepper (Trades, Portfolio), Dodge & Cox, Baron, Grantham, Daniel Loeb (Trades, Portfolio), Simons' firm, Sarah Ketterer (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Philippe Laffont (Trades, Portfolio) also have large positions in the stock.
Salesforce.com
Segalas trimmed the Salesforce stake by 27.96%, selling 2.01 million shares. The trade had an impact of -1.08% on the equity portfolio. During the quarter, the stock traded for an average price of $182.58 per share.
The guru now holds 5.18 million shares, accounting for 2.7% of the equity portfolio. GuruFocus data shows he has gained an estimated 105.71% on the investment.
Headquartered in San Francisco, the cloud-based software company, which provides customer relationship management services, has a market cap of $231.35 billion; its shares were trading around $254.17 on Wednesday with a price-earnings ratio of 99.3, a price-book ratio of 6.02 and a price-sales ratio of 11.9.
The Peter Lynch chart and GuruFocus valuation rank of 2 out of 10 both suggest the stock is overvalued, especially since the share price and price-sales ratio are approaching 10-year highs.
Salesforce's financial strength was rated 7 out of 10 by GuruFocus. Although the company has weak interest coverage, the Altman Z-Score of 7.53 indicates it is in good standing despite the fact its assets are building up at a faster rate than revenue is growing. The return on invested capital is also eclipsed by the weighted average cost of capital, indicating it is not making a profit on its projects and is, therefore, destroying value.
The company's profitability did not fare as well, scoring a 5 out of 10 rating. While the operating margin is underperforming versus industry peers, its returns are outperforming. Salesforce also has a high Piotroski F-Score of 7 and a one-star predictability rank.
Of the gurus invested in Salesforce, Fisher has the largest stake with 1.28% of outstanding shares. Other top guru shareholders include Pioneer, Steve Mandel (Trades, Portfolio), Coleman, Andreas Halvorsen (Trades, Portfolio), Loeb, First Eagle Investment (Trades, Portfolio) and Al Gore (Trades, Portfolio).
PayPal
Impacting the equity portfolio by 1.07%, the investor boosted his stake in PayPal by 76.28%, buying 2.03 million shares. Shares traded for an average price of $162.21 each during the quarter.
Segalas now holds a total of 4.7 million shares, which occupy 2.47% of the equity portfolio. GuruFocus estimates he has gained 46.49% on the investment so far.
The Palo Alto, California-based company, which operates a worldwide online payments system, has a $232.24 billion market cap; its shares were trading around $198.56 on Wednesday with a price-earnings ratio of 90.81, a price-book ratio of 13.16 and a price-sales ratio of 12.22.
According to the Peter Lynch chart, the stock is overvalued.
GuruFocus rated PayPal's financial strength 6 out of 10. Although the company has issued approximately $8.7 billion in new long-term debt over the past three years, it is still at a manageable level due to adequate interest coverage. It also has a good Altman Z-Score of 3.96 and the ROIC surpasses the WACC, indicating good returns on its projects.
The company's profitability scored an 8 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6, which indicates business conditions are stable.
Fisher is PayPal's largest guru shareholder with a 0.83% stake. Other top guru investors include Mandel, Laffont, Pioneer, PRIMECAP and Coleman.
Additional trades and portfolio performance
During the quarter, Segalas also established positions in Teladoc Health Inc. (TDOC, Financial), Carvana Co. (CVNA, Financial) and Alcon Inc. (XSWX:ALC, Financial).
The guru's $37.34 billion equity portfolio, which is composed of 54 stocks, is heavily invested in the technology sector at 34.42%, followed by smaller positions in the consumer cyclical (23.29%) and communication services (17.90%) spaces.
According to its fact sheet, the Capital Appreciation Fund posted a return of 33.28% in 2019, topping the S&P 500's 31.49% return.
Disclosure: No positions.
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