Top Stock Picks from Deccan Value Advisors
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Deccan Value Advisors closed in 2009 after one of its co-founders decided to leave the business. Vinit Bodas founded Deccan Value Investors the next year and focuses on the same strategy as the original Deccan fund, which at its peak had over a billion dollars under management: concentrated positions in a fairly small number of stocks. Deccan filed its 13F for the second quarter of 2012 in August and we have gone through it to find which stocks Bodas and his team like enough to take such concentrated positions in. Read on to see the fund’s top five picks or review all the stocks in its portfolio.
Deccan’s largest holding was State Street Corporation (NYSE: STT), with the fund reporting a position of about 900,000 shares at the end of June. Talk about concentrated: according to the 13F, this stake represented over 25% the value of Deccan’s portfolio. State Street consists of a brokerage division and an investment management division, and saw small decreases in its revenue and earnings last quarter compared to a year ago. At a $21 billion market capitalization, it trades at 12 times earnings and 10 times expected earnings for 2013 as well as just above the book value of its equity. State Street is in a good cash position, and pays a dividend yield of 2.2%.
Deccan also likes News Corp (NASDAQ: NWS), as do a number of other hedge funds who expect the company to break up. The fund owned 1.2 million shares at the end of the second quarter. Value investors like to invest in spinouts because the management of the spinout can better focus on the operations of the business and statistically these companies tend to generate higher returns. Read more about investing in spinouts. News Corp has also had to deal with legal issues but it remains a major player in the media business from broadcast television, cable television, and movies to newspapers.
The fund increased its stake in Visa (NYSE: V) by 35% to a total of about 200,000 shares.
Billionaire Chase Coleman’s Tiger Global Management also liked the credit card issuer during the second quarter, increasing its own position by 13% (see more of Tiger Global Management's stock picks). Visa’s market capitalization is about $90 billion, which along with sell-side earnings estimates of $7.16 in earnings per share for the next fiscal year represents a forward P/E of 19. Visa’s stock has risen 49% over the last year, more than doubling the S&P 500’s return.
Coca-Cola (NYSE: CCE), a Europe-focused distributor of Coca-Cola products, was another of Deccan’s top picks. The 830,000 shares the fund owned were essentially unchanged from the end of the previous quarter. Despite macro weakness in Europe, in the company’s most recent quarter it managed very small increases in its revenue and earnings compared to the same period in 2011. The stock is a bit more exposed to the broader market than one might think, with a beta of 0.9, which likely reflects the riskiness of its European operations over the last few years. Coca-Cola Enterprises trades at 13 times trailing earnings.
Deccan initiated a position of about 510,000 shares in Hillshire Brands (NYSE: HSH), a $3.2 billion market cap provider of packaged meat and frozen bakery products. Hillshire Brands, which recently spun out its coffee and tea business, pays a moderate dividend yield of 2% at current prices. Year to date it has underperformed the S&P 500, returning 4%. The stock trades at 18 times forward earnings estimates, and provides good protection from a macro downturn with a beta of only 0.4.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Visa. 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.