Introducing New Guru David Rolfe, Added to EXPD, CTSH, VAR, QCOM in Q2

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Wedgewood Partners is a new firm that GuruFocus tracks. The firm manages assets of about $2 billion and employs a long-term, long-only, value approach for its portfolio of 18-24 stocks. Its CIO is David Rolfe , and it has returns of 38.4% compared to a 1.1% loss for the S&P 500 cumulatively for the last five years, and 316.1% compared to 124.3% cumulatively for the last fifteen years.

The firm evaluates prospective investment companies for the following characteristics:

  1. Barriers to entry
  2. Threat of substitutes
  3. Buying power
  4. Supplier power
  5. Degree of internal rivalry
Their outlook as of the end of the second quarter is that the U.S. economy is showing scant growth and approaching a fiscal cliff, as year-over-year earnings have flat-lined to zero. Their portfolios, however, are constructed with the prospect of greater than 50% secular earnings growth rates compared to the S&P 500, and almost 25% secular earnings growth rates compared to the Russell 1000 Growth Index. They are positioned with a favorable risk/reward scenario of a 3% discount to the S&P 500's 12-month forward P/E valuation, also.

In the second quarter, the company did not buy any new stocks, but added to 17 of their portfolio's 19 positions. The largest new adds were to: Expeditors International of Washington ( EXPD ), Cognizant Technology Solutions Corp ( CTSH ), Varian Medical Systems Inc. ( VAR ), Qualcomm ( QCOM ).

Expeditors International Washington ( EXPD )

Wedgewood Partners added 769,678 shares to its holding of Expeditors International at an average price of $40 in the second quarter. It was their lowest average purchase price since they opened the position in the third quarter of 2011. They have traded the stock intermittently since before the second quarter of 2007.

Expeditors International of Washington Inc. is engaged in the business of providing global logistics services. Expeditors International of Washington has a market cap of $7.78 billion; its shares were traded at around $36.6 with a P/E ratio of 21.8 and P/S ratio of 1.3. The dividend yield of Expeditors International of Washington stocks is 1.5%. Expeditors International of Washington had an annual average earnings growth of 14.2% over the past 10 years. GuruFocus rated Expeditors International of Washington the business predictability rank of 3-star .

Expeditors' stock declined significantly in the second quarter 2012 after it issued first-quarter earnings guidance below analysts' estimates. It announced it expected net earnings to fall in the range of $0.35 to $0.37 per share. Analysts were expecting from $0.40 to $0.45 per share.

The company attributed the downward revision to the "fragility of the global economy." "Existing customers, particularly airfreight customers, are shipping at lower volumes than we experienced during the 2011 first quarter," the company's CEO Peter J. Rose said in a statement.

The company's actual earnings came in at $0.36 per share, on a 9% decline in year-over-year airfreight tonnages and 5% increase in airfreight shipments. In the second quarter, the company reported $0.39 earnings per share, an 11% decrease compared with $0.44 in the second quarter of 2011.

Cognizant Technology Solutions Corp ( CTSH )

Wedgewood added 396,700 shares to its holding of Cognizant Technology Solutions Corp. at an average price of $65. The company has been adding to the holding quarterly since the fourth quarter of 2010. This is the largest increase at the lowest average price since then.

Cognizant Technology Solutions delivers high-quality, cost-effective, full life cycle solutions to complex software development and maintenance problems that companies face as they transition to e-business. Cognizant Technology Solutions Corp has a market cap of $19.19 billion; its shares were traded at around $64.26 with a P/E ratio of 20.6 and P/S ratio of 3.1. Cognizant Technology Solutions Corp had an annual average earnings growth of 38.5% over the past 10 years. GuruFocus rated Cognizant Technology Solutions Corp the business predictability rank of 4.5-star .

Cognizant also experienced a dramatic drop in share price in the second quarter after lowering its fiscal year 2012 guidance. It announced it is expecting revenue growth of 20% for the year, to $7.34 billion; it previously anticipated 23% revenue growth compared to 2011, to $7.53 billion. In 2011, its revenue grew 33% from 2010. In the second quarter, it reaffirmed its full-year guidance.

During the first quarter, the company repurchased $43 million worth of shares and expanded the repurchase program to $1 billion. It had bought back $423 million worth of shares as of May 7. It repurchased a further $358 million of shares in the second quarter.

The company is flourishing during the market downturn as clients want more of its efficiency-enhancing services in such times.

Varian Medical Systems Inc. ( VAR )

Wedgewood added 353,218 shares to its holding of Varian Medical Systems at an average price of $63 in the second quarter. It has been adding to its holding of Varian quarterly since the first quarter of 2011.

Varian Medical Systems Inc. of Palo Alto, Calif., is the world's supplier of equipment and software for treating cancer. Varian Medical Systems Inc. has a market cap of $6.56 billion; its shares were traded at around $59.68 with a P/E ratio of 16.1 and P/S ratio of 2.5. Varian Medical Systems Inc. had an annual average earnings growth of 17.9% over the past 10 years. GuruFocus rated Varian Medical Systems Inc. the business predictability rank of 4.5-star .

In the second quarter, the company revised its outlook for earnings per share from continuing operations to increase by 8 or 9 percent, from its previous estimate of 9 to 12 percent growth over fiscal 2011 totals.

Qualcomm ( QCOM )

Wedgewood added 356,279 shares of Qualcomm at an average price of $61 in the second quarter, its largest purchase since it began adding shares every consecutive quarter since the fourth quarter of 2010 at an average price of $47.

Qualcomm Inc. develops and delivers innovative digital wireless communications products and services based on the company's CDMA digital technology. Qualcomm Inc. has a market cap of $105.36 billion; its shares were traded at around $60.9 with a P/E ratio of 19.5 and P/S ratio of 7. The dividend yield of Qualcomm Inc. stocks is 1.6%. Qualcomm Inc. had an annual average earnings growth of 18.2% over the past 10 years. GuruFocus rated Qualcomm Inc. the business predictability rank of 3.5-star.

In April, the stock's price declined when it issued financial guidance below analysts' estimates. The company said it expects for 2012 revenues of $3.61 to $3.76, compared to estimates of $3.77, according to Reuters.

Wedgewood commented the following on Qualcomm in its second quarter letter:

Qualcomm ( QCOM ) also detracted from performance during the quarter, particularly after the company disclosed that one of its suppliers of silicon wafers, specifically at the 28 nanometer process node, was struggling to keep up with demand and would serve to limit revenue growth for the fiscal year ending September 2012. Qualcomm mentioned that it has committed additional expenses towards supply procurement and expects the supply shortage to ease by the December quarter. With one of the largest net cash balances in Corporate America and ample free cash flow generation, the company has enough resource to aggressively address this problem. We added to the Qualcomm position during the quarter, as the stock was trading at the lower-end of its historical valuation range.

Qualcomm had $14.6 billion in cash and generated $523 million in the second quarter.

See Wedgewood Partners' portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of David Rolfe.About GuruFocus: GuruFocus.com tracks the stocks picks and portfolio holdings of the world's best investors. This value investing site offers stock screeners and valuation tools. And publishes daily articles tracking the latest moves of the world's best investors. GuruFocus also provides promising stock ideas in 3 monthly newsletters sent to Premium Members .




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing

Referenced Stocks: CTSH , EXPD , QCOM , VAR

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