Jeremy Grantham (Trades, Portfolio)’s GMO LLC recently disclosed its 13F portfolio updates for the fourth quarter of 2022, which ended on Dec. 31.
Grantham is a co-founder and member of the Asset Allocation team of Grantham, Mayo, Van Otterloo (GMO) & Co. LLC. Based in Boston, the asset management firm utilizes various long-term, value-based investment strategies that focus on risk management and diversification. Grantham is known for his success in consistently identifying and avoiding stock market bubbles such as the Japanese market bubble in the late 1980s, the dot-com bubble in the 90s and credit markets in 2006.
During the quarter, GMO’s top trades included additions to Amazon.com Inc. (AMZN, Financial) and Meta Platforms Inc. (META, Financial) and reductions to Global Payments Inc. (GPN, Financial) and Wells Fargo & Co. (WFC, Financial).
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Amazon.com
GMO increased its Amazon.com (AMZN, Financial) holding by 131.56% for a total of 4,305,401 shares. At the quarter’s average share price of $98.78, this trade added 1.10% to the equity portfolio.
Amazon is a leader in U.S. e-commerce and cloud services, and it is still one of the most valuable publicly traded companies in the world, though its market cap has fallen out of the trillion-dollar club to $970.98 billion. Its low-margin e-commerce business is struggling with inflation, and while the cloud business is still growing rapidly, it was slower than Wall Street’s expectations in recent quarters.
Given Amazon’s dominant market position in both of its main areas of operation, it is rare for it to see a significant drop in its share price, but that is exactly what has happened ever since the Covid market bubble popped. Amazon stock is now considered a possible value trap by the GF Value chart because its share price has fallen so far below the model’s estimate of fair value.
Meta Platforms
The firm also upped its stake in Meta Platforms (META, Financial) by 59.44% for a total holding worth 2,876,486 shares. The trade added 0.69% to the equity portfolio at the quarter’s average share price of $117.43.
Meta Platforms is the parent company of several social media juggernauts, including Facebook, Instagram and WhatsApp. It rebranded to its current name in late 2021 to represent that it is pinning its hopes for future growth on the Metaverse, a 3D interactive version of the internet.
The fact that Meta is relying on its Metaverse segment, Reality Labs, for its long-term growth means the story for investors has fundamentally changed, requiring careful reassessment. However, the company still gets the vast majority of its revenue from ads on its family of apps, with Reality Labs contributing only a small sliver to the top line.
Global Payments
The firm nearly eliminated its Global Payments (GPN, Financial) holding, reducing it by 98.5% for a remaining position of 18,070 shares. The trade shaved 0.74% off the equity portfolio. During the quarter, shares traded for an average price of $104.26.
Global Payments is a fintech based in Atlanta that provides payment technology and services to merchants, card issuers and consumers on a global scale. It hosts the world's leading complete commerce ecosystem to businesses of every size, carrying out billions of transactions every year.
The company has been making solid progress in growing its business and expanding partnerships in recent quarters. It has been pursing a strategy of divesting some of its consumer assets to focus on merchant and issuer channels. However, the company does face significant currency exchange risk, and it also took a huge goodwill charge in the second quarter of 2022 from the closure of its Russia operations.
Wells Fargo
GMO reduced its stake in Wells Fargo (WFC, Financial) by 26.74% for a remaining investment of 7,473,513 shares, slimming the equity portfolio by 0.63%. Shares averaged $44.26 apiece during the quarter.
Wells Fargo is a U.S. bank major headquartered in San Francisco. It is the fourth-largest bank in the U.S. by assets. Like its peers, the bank earns most of its revenue from loans and credit cards, though it is subject to an asset cap following its fake accounts scandal back in 2016.
Unless the asset cap is removed, Wells Fargo’s upside potential will remain limited. Even more concerning in the current rising interest rate market is Wells Fargo’s high exposure to the home mortgage market; the bank is the biggest mortgage servicer in the U.S. Even the relatively low price-book ratio of 1.11 seems a bit high when we consider a no-growth scenario.
See also
Other notable GMO trades for the quarter included additions to Adobe Inc. (ADBE, Financial) and SolarEdge Technologies Inc. (SEDG, Financial), a new buy for Alcoa Corp. (AA, Financial) and a reduction in Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial).
At the end of the fourth quarter, the firm’s 13F portfolio consisted of holdings in 708 U.S.-listed common stocks valued at a total of $18.77 billion. The turnover for the period was 12%.
The top holdings was Microsoft Corp. (MSFT, Financial) with 4.24% of the equity portfolio, followed by UnitedHealth Group Inc. (UNH, Financial) with 2.95% and Johnson & Johnson (JNJ, Financial) with 2.76%.
The sectors with the highest weighting in the portfolio were technology, health care and financial services.
