Gateway Investment Advisers’ Big Buys in the Fourth Quarter

Aubrey is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Gateway Investment Advisers is one of the longest-running option hedging portfolios. Gateway has earned popularity for its hedge equity strategies that serve risk-conscious investors.  It relies on near-term performance of the stock market to a lesser extent if compared to most fund managers that utilize the equity strategy.

The Cincinnati-based fund manager had a total of $10.325 billion worth of assets under management by the end of 2012 with its portfolio focusing on a diverse set of sectors. About 19.5 percent of its investments are in the technology sector, 18.7% in services, 17.5% are in financial, 10.5% are in energy, and 9.9% were placed in healthcare. Investors who are closely following the moves of Gateway Investment Advisers can get some insights from the latest big buys of the fund manager. Gateway initiated a huge position in Kraft (NASDAQ: KRFT), and Pentair (NYSE: PNR). It likewise increased its stakes significantly in Berkshire Hathaway (NYSE: BRK-B), Visa (NYSE: V), and Gilead Sciences (NASDAQ: GILD). I briefly analyzed these stocks from a fundamental perspective to see whether they are worth buying or not.

Kraft

Gateway initiated a $31-million dollar stake in Kraft Foods Group, the fourth largest packaged food and beverage company in North America. The holding represented 0.31 percent of the asset manager’s portfolio. The maker of iconic brands like Kraft, Jell-O, and Maxwell House is almost as good as a start-up since it was launched as an independent company last October.

With an established market base, Kraft continues to fight its battle for supremacy in the snack business. In 2011, the company generated roughly $19 billion in revenues.

Despite a sliding EPS, the expected growth is -4.69% next year; the long-term growth estimate for Kraft is a positive 3.35%. This, however, hardly excites me even with P/E ratio of 14.33 and a profit margin of 10.29%. For one, PEG is already 4.28 and the company is counting more on debt than equity to finance its business. Seriously, I would recommend it to investors only upon seeing a better trend in its revenues, one that is greater than the 2.95% year-on-year quarterly revenue growth.

Pentair

Aside from Kraft, Gateway also purchased a new stake at Pentair. The holding consisted 0.12% of the firm’s total portfolio. Pentair engages in the water and fluids solutions, thermal management, and equipment protection businesses. The growth prospect for Pentair is encouraging. Despite a sharp decline in the EPS this year, plummeting by 82.83%, it is expected to grow next year by 34.02%, and by 14.18% in the next five years. Because of this, investors find this stock attractive even with revenues going down and a profit margin that has hardly improved. The company’s trailing twelve months operating margins are also exceeding its historical averages. Pentair also relies less on debt as its debt-equity ratio is at a healthy level of 0.29. I am not confident though about its current valuation as its P/E ratio is at an overwhelming level of 213.00 while its PEG is 15.02.

Berkshire Hathaway

The fund manager increased its holding in Berkshire Hathaway by 39 percent in the fourth quarter. Berkshire Hathaway is an investment manager that engages in insurance and reinsurance of property as well as casualty risks. Berkshire recently posted a 52-week high, but investors wonder if this is likely to continue or not. However, with quarterly revenues climbing at 21.7% year-on-year and earnings growing by 72.10%, this stock is immensely popular. In fact, an analyst points that we might see more of this trend in the future because of the potential improvement in the insurance market.

Visa

Gateway purchased an additional 25 percent of Visa shares in the fourth quarter bringing the holding to 0.70 percent of the firm’s total portfolio. The San Francisco-based retail electronic payments giant has just been reiterated a buy with a score of A by TheStreet Ratings. Its EPS has recently been boosted by its revenue growth of 14.6% that came higher than the average of the industry at 10.9%. Visa is a very attractive stock indeed. With an EPS that is expected to rise by 18.73% in the long-term and an impressive profit margin of 20.55%, I can see why its stock price continues to perform robustly. The growth that Visa is enjoying is coming from various sources. Credit card spending is on an upward swing while merchant acceptance is increasing. Also, credit card penetration in China and Russia has grown by 24% and 65%, respectively.

Gilead

The stock has recently been reiterated a “buy” with a score of A- by TheStreet Ratings for its expanding profit margins, solid financial standing, impressive stock price movements, reasonable valuation, and a revenue growth that has outpaced the average for the industry. Gilead is a biopharmaceutical company with a market cap of $60.13 billion. This stock is up for grabs with its huge growth potential and impressive margins. In the next 5 years, EPS is estimated to grow by 18.81% annually. It is highly profitable with a net margin of 26.59%. Gilead’s growth prospects are expected to come from the advances it has made in the HIV drugs segment – consisting of Truvada, Atripla, its newly-launched Complera/Eviplera, and Stribild. GILD is likewise showing significant advancements in its clinical trials for its single tablet regimen for HIV-1 treatment – TAF or tenofovir alafenamide.

Among the big buys of Gateway, I can bet big on Gilead, Visa, and Berkshire Hathaway for their promising growth prospects for 2013. But I must give credit to Pentair for its robust stock performance and Kraft for its encouraging performance since the spin-off last year.


aubrey1102 has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway, Gilead Sciences, and Visa. The Motley Fool owns shares of Berkshire Hathaway and Pentair. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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