Jerome Dodson’s Parnassus Fund Buys Splunk, Boosts Fortinet
The Parnassus Fund released its equity portfolio for the second quarter, which ended June 30, earlier this week.
With the goal of capital appreciation, the San Francisco-based firm, which was founded by in 1984, invests across the capitalization spectrum in discounted companies that have strong competitive advantages, relevant products or services that will compound growth over the long term and quality management teams. Dodson is also known for being socially responsible, which means he takes the environmental and societal impacts of the business into account.In 2020, Dodson stepped down from managing the funds, but remained chairman of the board. Then, in July of 2021, Affiliated Managers Group announced it was paying $600 million to acquire a majority stake in Parnassus Investments. The deal closed in October of that year.
Taking its criteria into account, the NPORT-P filing shows the Parnassus Fund established three new positions during the quarter, sold out of two stocks and added to or trimmed a handful of other existing holdings. Notable trades included a new investment in Splunk Inc. (
SPLK, Financial), a boost to the Fortinet Inc. (FTNT, Financial) holding and reduced positions in Cadence Design Systems Inc. (CDNS, Financial), Synopsys Inc. (SNPS, Financial) and Teradyne Inc. (TER, Financial).
Investors should be aware that, just like 13F filings, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, they collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these limited filings can provide valuable information.
Splunk
The fund invested in 272,346 shares of Splunk (
SPLK, Financial), dedicating 3.48% of the equity portfolio to the holding. The stock traded for an average price of $110.61 per share during the quarter.
It is now the fund’s eighth-largest position.
The San Francisco-based software company, which focuses on analyzing machine data, has a $17.27 billion market cap; its shares were trading around$107.34 on Friday with a price-sales ratio of 5.90.
The GF Value Line suggests the stock, while undervalued, is a possible value trap currently based on historical ratios, past financial performance and future earnings projections. As such, potential investors should do thorough research before making a decision.
Splunk’s financial strength and profitability were both rated 3 out of 10 by GuruFocus. The low Altman Z-Score of 0.78 warns the company could be at risk of bankruptcy if it does not improve its liquidity. Further, assets are building up at faster rate than revenue is growing, indicating it may be becoming less efficient.
The company is also being weighed down by declining margins and negative returns on equity, assets and capital that underperform a majority of competitors. Splunk also has a moderate Piotroski F-Score of 4 out of 9, suggesting operations are typical of a stable company, and a predictability rank of one out of five stars. According to GuruFocus research, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Splunk,
PRIMECAP Management (Trades, Portfolio) has the largest stake with 4.90% of its outstanding shares.
Elfun Trusts (Trades, Portfolio),
Baillie Gifford (Trades, Portfolio),
Steven Cohen (Trades, Portfolio),
Ken Fisher (Trades, Portfolio),
Joel Greenblatt (Trades, Portfolio) and
Catherine Wood (Trades, Portfolio) also have positions in the stock.
Fortinet
Parnassus increased its Fortinet (
FTNT, Financial) position by 88.39%, buying 253,665 shares. The transaction expanded the equity portfolio by 2.07%. Shares traded for an average price of $59.53 each during the quarter.
The fund now holds 540,640 shares total, accounting for 4.42% of the equity portfolio and its third-largest holding. GuruFocus estimates Parnassus has gained 1.93% on the investment so far.
The cybersecurity company, which is headquartered in Sunnyvale, California, has a market cap of $49.61 billion; its shares were trading around $61.62 on Friday with a price-earnings ratio of 80.15, a price-book ratio of 225.14 and a price-sales ratio of 14.22.
According to the GF Value Line, the stock is modestly overvalued currently.
GuruFocus rated Fortinet’s financial strength 7 out of 10 on the back of adequate interest coverage and a high Altman Z-Score of 6.42, which indicates the company is in good standing even though assets are building up faster than revenue is growing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s profitability scored an 8 out of 10 rating, driven by operating margin expansion and returns that top a majority of industry peers. Fortinet also has a moderate Piotrsoki F-Score of 5 and a one-star predictability rank.
With a 0.58% stake,
Jim Simons (Trades, Portfolio)’ Renaissance Technologies is the company’s largest guru shareholder.
Ray Dalio (Trades, Portfolio),
Mario Gabelli (Trades, Portfolio), Greenblatt,
Paul Tudor Jones (Trades, Portfolio),
Lee Ainslie (Trades, Portfolio) and Fisher also have positions in Fortinet.
Cadence Design Systems
With an impact of -3.30% on the equity portfolio, Dodson’s fund curbed its Cadence Design Systems (
CDNS, Financial) holding by 63.22%, selling 182,456 shares. During the quarter, the stock traded for an average per-share price of $151.20.
The fund now holds 106,149 shares total, which represent 2.30% of the equity portfolio. It has gained an estimated 143.58% on the investment so far according to GuruFocus.
The San Jose, California-based company, which provides electronic design automation software, has a $46.49 billion market cap; its shares were trading around $168.57 on Friday with a price-earnings ratio of 63.15, a price-book ratio of 16.85 and a price-sales ratio of 14.86.
Based on the GF Value Line, the stock appears to be modestly overvalued currently.
Cadence’s financial strength was rated 8 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the robust Altman Z-Score of 19.72 indicates the company is in good standing even though assets are building up. The ROIC also eclipses the WACC, so value creation is occurring.
The company’s profitability fared better with a 10 out of 10 rating, driven by operating margin expansion, strong returns that top a majority of competitors and a high Piotroski F-Score of 9, meaning operations are healthy. Consistent earnings and revenue growth contributed to a four-star predictability rank. GuruFocus data shows companies with this rank return an average of 9.8% annually.
Cohen has the largest holding of Cadence with 0.14% of its outstanding shares. Other top guru investors include Simons’ firm, Dodge & Cox, Dalio and
Jeremy Grantham (Trades, Portfolio).
Synopsys
Impacting the equity portfolio by -2.56%, the fund reduced its Synopsys (
SNPS, Financial) position by 55.91%, selling 69,597 shares. The stock traded for an average price of $302.16 per share during the quarter.
Parnassus now holds 54,882 shares in total, reflecting 2.41% of the equity portfolio. It has gained an estimated 90.12% on the investment over its lifetime.
The EDA software company headquartered in Mountain View, California has a market cap of $51.56 billion; its shares were trading around $337.25 on Friday with a price-earnings ratio of 52.41, a price-book ratio of 9.26 and a price-sales ratio of 11.13.
The GF Value Line suggests the stock is fairly valued currently.
On the back of sufficient interest coverage and a high Altman Z-Score of 10.2, GuruFocus rated Synopsys’ financial strength 8 out of 10. The company may be becoming less efficient, however, since assets are building up faster than revenue is growing. Value is also being created since the ROIC exceeds the WACC.
The company’s profitability fared slightly better, scoring a 9 out of 10 rating due to an expanding operating margin and strong returns that top a majority of industry peers. Synopsys also has a high Piotroski F-Score of 8, while steady earnings and revenue growth contributed to a 4.5-star predictability rank. GuruFocus found companies with this rank return, on average, 10.6% annually.
Of the gurus invested in Synopsys, Simons’ firm has the largest holding with 0.08% of outstanding shares. Additional guru shareholders are Wood, Grantham, Fisher, Greenblatt, Dodge & Cox, Dalio and Jones.
Teradyne
Parnassus slashed its Teradyne (
TER, Financial) holding by 75.46%, selling 152,903 shares. The transaction had an impact of -1.99% on the equity portfolio. During the quarter, shares traded for an average price of $104.26 each.
The fund now holds 49,728 shares total, giving it 0.64% space in the equity portfolio. It has lost approximately 25.14% on the investment so far.
The Reading, Massachusetts-based company, which manufactures automatic test equipment for semiconductors, has a $16.04 billion market cap; its shares were trading around $100.16 on Friday with a price-earnings ratio of 18.60, a price-book ratio of 6.52 and a price-sales ratio of 4.93.
According to the GF Value Line, the stock is modestly undervalued currently.
Teradyne’s financial strength and profitability were both rated 9 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the company has a robust Altman Z-Score of 11.61. The ROIC outshines the WACC, so value is being created.
On top of an expanding operating margin, the company is being supported by returns that are outperforming versus competitors and a moderate Piotroski F-Score of 6. Teradyne also has a one-star predictability rank.
With a 3.66% stake,
Baillie Gifford (Trades, Portfolio) is the company’s largest guru shareholder. Other gurus who hold Teradyne include
PRIMECAP Management (Trades, Portfolio), Wood, Simons’ firm, Cohen, Fisher, Greenblatt, Dalio, Jones and
Caxton Associates (Trades, Portfolio).
Additional trades and portfolio performance
During the quarter, Dodson’s fund also entered new positions in C.H. Robinson Worldwide Inc. (
CHRW, Financial) and Align Technology Inc. (ALGN, Financial), sold out of Coupa Software Inc. (COUP, Financial), added to its Ansys Inc. (ANSS, Financial) holding and cut back its investments in Five9 Inc. (FIVN, Financial) and Match Group Inc. (MTCH, Financial)
Parnassus’ $693 million equity portfolio, which consists of 40 stocks, is largely invested in the technology sector with a weight of 33.29%, followed by health care at 19.48% and industrials at 19.09%.
The Parnassus Fund returned 9.37% in 2021, significantly underperforming the S&P 500’s 28.70% return.
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