Vantage Investment Three Stock Picks
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Vantage Investment Partners LLC, an investment advisory firm, recently announced its latest holdings. The total market value of its investments was ~$213 million on Dec. 31. With around 20 years of experience in investing, the firm is known for its unique investment approach during volatile markets. In my article today, I have picked up three stocks from Vantage's portfolio in which it increased its holdings in the recent 13F filings. Let's look at each of these stocks in detail.
Source: Google Finance
2012 was an important year for Century Link, as it successfully integrated its two major acquisitions of Qwest and Savvis with better than expected synergies. The company has increased its synergy targets for Qwest in operating expenses to ~$650 million (up from ~$575 million) to be achieved in the next 2-4 years. The company is now focused on growing its market share in various segments, with its top priority on the Cloud services. Century Link entered the Cloud computing business with its acquisition of Savvis in 2011. Recently, the company expanded its Cloud services with the launch of savvisdirect, which target enterprises of all sizes for cost effective Cloud solutions. The service is currently available in North America and will be further expanded into Europe and Asia in 2013. This is a web portal which will provide quick access to a complete range of offerings such as IaaS, PaaS, virtual servers, and Cloud storage. The portal is especially targeting small businesses that do not have much experience with Cloud services. I feel such initiatives would benefit Century Link with a greater scale of operations, along with higher revenue generating opportunities.
Apart from this, the company continues to de-leverage its balance sheet and has succeeded in reducing its leverage by ~1.5 billion in 2012. This has helped it in achieving good dividend yields for its shareholders. It has had an average dividend yield of ~6.5% in the last five years and a forward annual yield of ~7.3%. I expect the company to generate ~$2.9 billion of FCF in 2013. This will further increase its shareholder's returns via dividend increases or share buybacks, as well as more reductions in debt.
MFA Financial, Inc.
MFA's stock has given decent returns to its shareholders with ~20% upside movement. The company has always remained an attractive option for investors with its strong dividend yield. Its forward yield is at around 9% with an average of ~12.30% in the last five years. I feel the company's balanced business model of agency and non-agency MBS (mortgage based securities) makes it well-positioned in the industry. And, this composite portfolio supports the company during the interest rate volatility.
The company's capital allocation has been quite stable at 60% agency and 40% non-agency securities. In 2012, MFA has assigned more capital to the 15-year fixed agency MBS to secure protection from prepayment options. In the last quarter, the company witnessed an increase in prepayment on its agency securities to ~21.6% from ~20.4% in 2Q12. Therefore the company's decision to tilt more towards fixed agency MBS will definitely result in balanced prepayments in 2013. On the other hand, its non-agency portfolio is also attractive with market yields at ~6%. On the whole, I believe with the improving conditions in the housing market, MFA's portfolio will continue to generate good returns for the company in 2013.
Microsoft's 2Q13 earnings were released last week, and the company posted revenue of $21.46 billion. The company had a decent year until it launched its highly awaited product Windows 8. Even though Windows 8 has super exciting features, it was not able to pull as much revenue as investors expected. But still Microsoft sold ~40 million licenses in one month after the launch. Looking at the extensive adoption of Windows 8, I feel it is a pretty good start for the operating system, as it had to fill in for a much more stable Windows 7. I expect Win 8 to be the new potential revenue generator for Microsoft with around 80% of total Windows license revenue for this quarter. Moreover, the upgrade cycle of Windows 7 by the organization is only 60% complete. This is another big opportunity for the company to cash in upon in 2013-14.
Going forward, I believe the scheduled launch of its 'Surface Pro' Tablet would help the company drive more sales in FY13. The earlier launched Surface RT Tablet had a miserable performance because of the company's poor distribution policies. Also, it didn't carry all the features and applications of Windows 8, which resulted in dull sales numbers. On the other hand, I believe Surface Pro will come to Microsoft's rescue in 2013. Surface Pro is powered with the Intel Ivy Bridge processor, which is the fastest core chip series, and it runs on Windows 8 Pro, which is the latest in the Windows series. Also, Surface Pro will be able to run all Windows store applications, which were missing in its previous launch. This tablet is already witnessing a high corporate adoption, with companies like SAP announcing its plans to purchase it for employees. Overall, I feel Windows 8 and the Surface Pro Tablets are exactly what was required for Microsoft to turn things around in 2013.
To sum up, I feel these three stocks from Vantage's portfolio can be a good opportunity for investors. MFA Financial would gain from its strong portfolio and improving market conditions. On the other hand, Century Link and Microsoft will be under focus for their innovative products and solutions. I recommend buying these three stocks.
madhudube has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. 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!