Tracking Ruane, Cunniff & Goldfarb's Portfolio - Q3 2016 Update

| About: Sequoia Fund (SEQUX)

Summary

Ruane, Cunniff & Goldfarb’s 13F portfolio increased from $10.50B to $10.65B. The number of positions decreased from 117 to 100.

They substantially increased Dentsply Sirona and 58.com during the quarter.

The top three positions are Berkshire Hathaway, TJX Companies and Alphabet, and they add up to ~32% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Ruane, Cunniff & Goldfarb's US stock portfolio on a quarterly basis. It is based on their regulatory 13F Form filed on 11/14/2016. Please visit our Tracking Ruane, Cunniff & Goldfarb's Portfolio article for an idea on their investment philosophy and our previous update for the moves during Q2 2016.

This quarter, Ruane, Cunniff & Goldfarb's US long portfolio increased marginally from $10.50B to $10.65B. The number of holdings decreased from 117 to 100. Forty-one of those stakes are significantly large (more than ~0.1% of the portfolio each) and they are the focus of this article. The top three holdings are at 31.68% while the top five are at 41.56% of the US long assets: Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), TJX Companies (NYSE:TJX), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL), MasterCard (NYSE:MA) and O'Reilly Automotive (NASDAQ:ORLY).

The firm is best known as the investment advisor of the Sequoia Fund (MUTF:SEQUX) which has a venerable 46-year track record. YTD performance, however, is underwhelming: down ~7% compared to up ~10% for the S&P 500. Currently, they have a ~10% cash-allocation and views the overall market as fully valued. Despite this, the fund was reopened for new investor money during the quarter.

Bill Ruane was a Benjamin Graham pupil. To learn about Benjamin Graham's teachings, check out the classics The Intelligent Investor and Security Analysis.

New Stakes:

Fortive Corp. (NYSE:FTV): The minutely small 0.36% portfolio stake came about as a result of the spinoff of Fortive from Danaher (NYSE:DHR) that closed in July. They had ~1.5M shares of Danaher for which they received 750K shares in the ratio 2:1. Regular-way trading started at ~$49.50 and the stock currently goes for $55.28.

Stake Decreases:

Alphabet Inc., previously Google: GOOG is a large (top three) 5.77% of the portfolio position. It was first purchased in 2008 and that original stake was almost sold out the following year. In 2010, a much larger position was built in the mid-200s price-range. The stake had seen only very minor activity since. Q1 2016 saw a ~18% reduction at prices between $678 and $765 and that was followed by another ~10% selling last quarter at prices between $668 and $767. The stock is now at $771. They are starting to harvest huge long-term gains. This quarter saw a ~4% trimming.

Berkshire Hathaway: BRK.B is the largest position at 18.11% of the portfolio. The last significant activity was in 2012 when there was a one-third increase at prices between $76 and $92. The stock is now at $158. Last four quarters have seen minor reductions.

CarMax Inc. (NYSE:KMX) and Charles Schwab (NYSE:SCHW): KMX and SCHW are medium-sized 2.90% and 2.21% of the portfolio stakes purchased last quarter. The KMX position was bought at prices between $46 and $56 and it is now at $57.51. The SCHW stake was purchased at prices between $24 and $31 and the stock is now at $38.46. Both stakes saw minor trimming this quarter.

JD.com (NASDAQ:JD): The vast majority of the 0.92% portfolio stake in JD was purchased last quarter at prices between $20 and $30. The position was reduced by half this quarter at prices between $20 and $27. The stock is now at $26.85.

Chipotle Mexican Grill (NYSE:CMG) and JPMorgan Chase (NYSE:JPM) & WTS: These two stakes were established in Q1 2016 and increased significantly last quarter. Most of the 2.28% portfolio position in CMG was purchased last quarter at prices between $389 and $471 and the stock is now at $395. The 0.95% JPM stake was purchased in Q1 2016 when the share price varied between $53 and $66 and was increased by ~70% last quarter when the stock price varied between $57 and $66. It is now at $78.92. Both positions saw minor trimming this quarter.

Fastenal Company (NASDAQ:FAST): FAST is a fairly large 4.49% of the portfolio stake. The original position is from 2001 & 2002 at a cost-basis just under $10 per share. The stock saw three 2-for-1 stock-splits during the holding period and the current position is at ~12.1M shares. Q1 2016 saw a ~22% selling at prices between $36.50 and $50 and that was followed by another one-third reduction last quarter at prices between $43 and $49. The stock is currently at $47.01. They are harvesting huge long-term gains. There was a ~5% trimming this quarter.

Note: Their ownership stake in the business is at ~4%.

IDEXX Laboratories (NASDAQ:IDXX): IDXX was a medium-sized 4.67% of the portfolio stake in Q1 2016. It was almost sold out last quarter at prices between $78 and $93. The original position was from 2003 when ~1.6M shares (~6.4M shares after accounting for the two 2-for-1 stock splits since) were acquired at a cost-basis of around $11. The stock currently trades at $120. There was marginal selling this quarter. They are harvesting large long term gains.

O'Reilly Automotive : ORLY is a large (top five) 4.87% of the portfolio stake first purchased in 2004. Around ~1.9M shares (~3.8M shares after accounting for the 2-for-1 stock split in 2005) were acquired at the time at around $20 per share. Q1 2016 saw a ~18% reduction at prices between $232 and $277 and that was followed by another one-third reduction last quarter at prices between $253 and $278. It is now at $275. This quarter also saw a ~2% trimming. They are harvesting huge long-term gains. The stock has had a tremendous run (~15 times return) over the holding period.

TJX Companies : TJX is a large (top three) 7.80% of the portfolio position. It is a very long-term stake and the holding period is over 15 years. The stock has seen a ~15x return over that time frame. Last year saw significant selling: one-third reduction at prices between $64 and $73. The pattern continued this year: ~36% reduction so far at prices between $67 and $83. The stock is now at $78.81. Ruane is continuing to harvest huge long-term gains.

American Express (NYSE:AXP), Costco Wholesale (NASDAQ:COST), Omnicom Group (NYSE:OMC), Praxair (NYSE:PX), Visa Inc. (NYSE:V), Wal-Mart Stores (NYSE:WMT) and West Pharmaceutical Svcs. (NYSE:WST): These are very small (less than ~1.5% of the portfolio each) stakes that were reduced during the quarter.

Note: The small 0.61% Wal-Mart position was disposed of after the quarter ended. It was a long-term stake held for over a decade. Over the holding period, Wal-Mart slightly underperformed the S&P 500 index. Sequoia's Q3 2016 investor update had the following on the exit: "We think higher wages for its entry level workers, continued growth at Amazon and the need to invest heavily in e-commerce will put pressure on Walmart's earnings over the next few years."

Stake Increases:

58.com Inc. (NYSE:WUBA): WUBA was a minutely small 0.4% stake in Q2 2015. The following quarter saw a ~130% increase at prices between $41 and $65. The stake had seen minor trimming since. There was an about-turn this quarter: two-thirds increase at prices between $44 and $55 and the stake is now at 2.24% of the portfolio. The stock currently trades well below the low end of those ranges at $32.77. For investors attempting to follow, WUBA is a very good option to consider for further research.

Baidu Inc. (NASDAQ:BIDU): BIDU is a fairly large 4.52% of the US long portfolio position established last quarter at prices between $160 and $196. The stock currently trades near the low end of that range at $169. For investors attempting to follow, BIDU is a good option to consider for further research. This quarter saw a marginal increase.

Danaher Corp. : DHR is a very small 1.34% of the portfolio. The stake saw a ~32% increase over the last two quarters at prices between $71 and $82. The stock is now at $79.13.

Note: In July, DHR completed the spinoff of Fortive. Danaher stockholders received one share of Fortive common stock for every two shares of Danaher held. The prices quoted above are adjusted for this transaction.

DENTSPLY SIRONA Inc. (Dentsply Sirona) (NASDAQ:XRAY): XRAY is a 4.56% of the US long portfolio position established in Q1 2016 as a result of the acquisition of Sirona Dental (NASDAQ:SIRO) by Dentsply. They had a 2.79M share stake in SIRO (~5% of the business) for which they received ~5M shares (1:1.8142 ratio) of Dentsply Sirona. This quarter saw a ~75% increase at prices between $59 and $65 and the stock is now at $60.47. For investors attempting to follow Ruane, XRAY is a very good option to consider for further research.

Note: XRAY was profiled in Sequoia's Q3 2016 investor letter. They are very bullish on the merger and believe management under Jeff Slovin is the right team. The original position in Sirona Dental was from 2011 and they have large unrealized gains.

MasterCard Inc. : MA is a top-five ~5% of the portfolio stake established soon after its IPO in 2006 at a split-adjusted cost-basis of $4.50 per share. The original position was huge at ~2.4M shares (24M shares after accounting for the 10-for-1 stock-split in 2014). It was sold down by ~72% over the next two years. Since then, the stake was kept relatively steady as the stock marched higher to the current price of $104 per share. Last three quarters had seen minor reductions while this quarter saw a ~5% increase.

Mohawk Industries (NYSE:MHK): MHK is a very long-term 4.64% of the portfolio position first purchased in 2001. The position became a significantly large stake in Q3 2002 when close to 10M shares were purchased at a cost-basis of around $50. The position size was reduced by around two-thirds in the 2012-13 time frame at progressively higher prices. Since then, the sizing has remained relatively steady. Last three quarters have seen minor selling while this quarter saw a marginal increase. The stock is currently at $200.

Note: They have a ~3.3% ownership stake in the business.

Perrigo Company (NASDAQ:PRGO): PRGO is a small 1.28% of the portfolio position first purchased in Q3 2010 at prices between $56 and $66. The position was kept almost steady till Q2 2015 when there was a ~14% reduction at prices between $163 and $204. Last quarter also saw a ~10% reduction at prices between $87 and $131. There was an about-turn this quarter: ~12% increase at prices between $86 and $98. The stock currently trades at $85.79.

Primerica, Inc. (NYSE:PRI) and Wells Fargo (NYSE:WFC): PRI is a 2% of the portfolio stake first purchased in Q2 2010. It was kept relatively steady till Q1 2015. The following quarter saw a ~20% reduction at prices between $44 and $51. There was a ~31% increase last quarter at prices between $43 and $59 and that was followed by a ~6% increase this quarter. The stock is now at $71. WFC was a minutely small position as of Q1 2016. Over 5M shares were purchased last quarter at prices between $45 and $51 and the stake is now at 2.27% of the portfolio. The stock currently trades at $51.86. This quarter saw a ~4% further increase. The activity indicates a clear bullish bias toward these businesses.

Note: Their ownership stake in PRI is at ~9%.

Jacobs Engineering (NYSE:JEC) and Waters Corp. (NYSE:WAT): These two ~2.5% portfolio stakes saw minor increases this quarter. WAT and JEC are long-term stakes first purchased in 2011 and 2012, respectively.

EMCOR Group, Inc. (NYSE:EME), Goldman Sachs (NYSE:GS), and Tiffany & Co. (NYSE:TIF): These are very small (less than ~1.5% of the portfolio each) stakes that saw increases this quarter.

Kept Steady:

athenahealth, Inc. (NASDAQ:ATHN), Builders FirstSource (NASDAQ:BLDR), IAC/InterActive (IACI), Interactive Brokers Group (NASDAQ:IBKR), MakeMyTrip (NASDAQ:MMYT), Match Group (NASDAQ:MTCH), Third Point Reinsurance (NYSE:TPRE), and Yandex N.V. (NASDAQ:YNDX): These very small stakes (less than 0.75% of the portfolio each) were left untouched during the quarter.

Note: They have a 6.67% ownership stake in MMYT and 3.6% ownership of BLDR.

As a percentage of the portfolio, the remaining positions are all below 0.1% of the portfolio each and so have limited portfolio performance impact.

The spreadsheet below highlights changes to Ruane, Cunniff & Goldfarb's US stock holdings in Q3 2016:

Click to enlarge

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.