3 Long Ideas From Aberdeen Asset Management’s Top Buys

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

Aberdeen Asset Management is a UK based investment firm managing over $200 billion in assets. The company recently filed its 13F form with SEC. I scanned its top buys from the last quarter and the following three stocks look promising.

Xerox (NYSE: XRX)

Aberdeen Asset Management bought 21,839,037 shares of Xerox last quarter. Xerox is trading at a forward PE of 5.66. Its expected EPS for the current year is $1.05 and next year is $1.12. The company’s top line is expected to decline 1% in the current year and grow 1% next year. The company has a FCF yield of 20% and a dividend yield of 2.70%. Even if we factor in the concerns about business fundamentals, the company’s valuation is too low to ignore. Although I don’t see any imminent catalyst in the near term, I believe investors should start building in a position in the stock. Whenever any positive development takes place, the stock could run up very fast and investors waiting for the opportunity to enter may miss the rally.

Yum! Brands (NYSE: YUM)

Aberdeen Asset Management bought 20,177,223 shares of Yum last quarter. Yum is trading at a forward PE of 19.24. Its expected EPS for the current year is 3.28 and next year is 3.74. The company is expected to post top line growth of 9.00% in the current year and 8.50% next year. I believe Yum has very attractive long term growth prospects in the international markets. Currently, 65% of Yum’s revenues come from international market and I expect its share to steadily increase. Domestically, Taco Bell continues to do well and Grab market share from Chipotle Mexican Grill. In addition to sound business fundamentals, Yum’s financial position is equally attractive. Heavily franchised nature of Yum’s business enables it to drive steady cash flow which can be returned to shareholders through dividend and buy backs. Near term macro concerns aside, I believe Yum makes a good long term buy.

Yahoo! (NASDAQ: YHOO)

Aberdeen Asset Management bought 14,432,635 shares of Yahoo last quarter. Yahoo is trading at a forward PE of 15.01. Its expected EPS for the current year and next year is $1.15. The company is expected to post top line growth of 1.70% in the current year and 3.00% next year. With Marissa Mayer taking over as Yahoo’s CEO, the company’s investment thesis has changed from capital return story to growth and turnaround story. I believe investors buying Yahoo should have 2-3 years investment horizon in mind. Yahoo is likely to focus on increasing their presence in mobile, repositioning Yahoo as a better platform and increasing social content on its properties. Given Yahoo’s 700 million strong user base, I think this turnaround may work. In fact, I won’t be surprised if Yahoo witnesses a similar turnaround like AOL. Hence, I would recommend investors to buy Yahoo.

To sum up, Xerox is a contrarian buy available at low valuations while Yum is a good long term buy and the stock is likely to see upside if the broader macros improve. Yahoo, on the other hand, is an interesting turnaround story to bet on with 2-3 year investment horizon.


GayatriSharma has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Yahoo!. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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