4 Top Stocks That Pro Investors are Buying
Federico is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I think it is important to consider stocks that prominent investors recently added to their portfolios. As it is explained in one of the blog posts in Warren Trades, top value managers have more resources and information than any individual investor to analyze companies. In general they do not buy stocks for daytrading or short term trading. Hedge funds with billions under management are long term oriented so tracking their picks is one important step when analyzing stocks. In this article I will detail recent picks from 4 top value investors.
The first is AIG (NYSE: AIG). Julian Robertson bought AIG in the last quarter. I think that the shares will trade in the range of $36 to $30 for the rest of the year because the company's last results were good but did not provide any incremental reason to buy AIG at levels above $36. In fact, Deutsche Bank wrote a report explaining that EPS of $1.00 came in ahead of consensus of $0.88, but core EPS (from the insurance businesses) was not as strong as DB estimated. Persisting prior-year unfavorable reserve development combined with some one-time items in the Life segment dragged on results. My opinion is that AIG is a long term buy, but I do not see stock appreciation for the next 3 months.
From the recent conference call, I concluded that capital in 2013 will be less predictable as regulatory issues remain. For example, the company can introduce a dividend but that is not clear until the Fed reviews its balance sheet, which is improving as the company is focused on a stronger coverage ratio to improve credit ratings. The big positive of this stock is that its businesses went back on track sooner than expected fueled by positive pricing trends, expense control and improved momentum at SunAmerica. In fact, SunAmerica pre tax earnings grew 19% year over year in the first half of 2012. Going ahead, the pending Woodbury Financial Services acquisition is a positive development to SunAmerica's operational efficiencies and earnings growth.
The second stock is eBay (NASDAQ: EBAY), which was bought by top investor Steve Mandel from Lone Pine Capital. eBay has 2 drivers: Paypal and the Marketplaces segment. PayPal delivered a strong Q3 performance. It ended the quarter with 117.4 million active registered accounts, a 14% increase over the third quarter of 2011. Revenue increased 23% year over year and net total payment volume grew 20% year over year to $35.2 billion which is very strong. I think PayPal will continue to grow from solid results driven by increased merchant coverage and share of checkout. In addition, PayPal is exposed to the mobile transactions secular trend.
The Marketplaces segment delivered another strong quarter with accelerating user growth. Gross merchandise volume (GMV), excluding vehicles, increased 11% year over year to $16 billion in the third quarter of 2012. Marketplaces revenue increased 9% year over year, driven by strong growth in the United States and Asia Pacific. Active user growth continued to accelerate during the quarter, reaching 10% year over year, the fastest growth since 2007, with 800,000 new users coming from mobile. This helped boost sold items growth, which was up 19% YoY.
PayPal's growing trends are very positive as eBay adds more retailers in PayPal P.O.S solution by year end. Also mobile is driving momentum to eBay. Management announced that North America business is performing better than expect while Europe trends have stabilized. These factors, among others, made them increase their guidance. This is a great technology stock to focus on.
NetApp (NASDAQ: NTAP) is a very interesting pick from Lee Ainslie from Maverick Capital. It is always important to differentiate between structural or fundamental problems vs. short term seasonal or macro headwinds that create earning results that miss expectations. In the case of NetApp, I think the business is fundamentally solid. According the NetApp recent conference call, the company is the only vendor that can unify structured and unstructured data at scale, which not only makes customers' information accessible, available, safe and cost-effective, but also empowers customers to use data to operate and transform their businesses.
The stock has been under pressure from earnings results that missed analyst expectations. The company's overall first quarter financial performance was in line with the company's internal expectations, but were influenced by seasonality factors and a weak macro environment plus FX headwinds. The decline in product revenue drove the overall reduction in net revenue from Q4 as well as from Q1 last year. Recognizing the uncertain environment, the company demonstrated strong discipline in managing expenses, as well as generating a sequential increase in gross margin to produce a better-than-expected operating margin and earnings per share. NetApp went down 25% in just one month, a decline driven from macro related headwinds. I think that huge decline in the stock was exaggerated.
Finally, John Burbank, founder of Passport Capital bought both Agrium (NYSE: AGU) and CF Industries (NYSE: CF). In order to understand his purchases it is important to know that farmers' investment decisions in fertilizers or ag machinery are highly correlated with increased corn or soybean prices. The impact of dry weather across the United States and a number of other growing regions has diminished projected crop yields for the current growing season, increased crop prices and created expectations for high planted acreage again in 2013. In the July World Agriculture Supply and Demand Estimates report, the U.S. Department of Agriculture reduced its U.S. corn yield estimate from 166 to 146 bushels per acre which, along with other changes made to their production and demand estimates, resulted in a projected stocks-to-use ratio of 9.3% for the end of the 2012/2013 crop marketing year, well below the ten year average of 12.%. A further reduction in the yield projection is possible. As a result, corn and soybean futures prices have rallied to levels which imply 2013 corn plantings of 96 million acres.
Burbank is betting that both CF and AGU wil benefit from this trend as farmers will spend more on fertilizers in order to maximize its stocks-to-use ratios. In addition, one of Agrium's largest shareholders is JANA Partners, an activist hedge fund that recently made several proposals to unlock value. According to the hedge fund's remarks, JANA urged Agrium's board and management to set aside "diversionary tactics" and embrace Agrium's value creation potential, explaining "we see no reason why shareholders should be forced to settle for 'good enough' when the company can so readily address its persistent underperformance and undervaluation by addressing the issues we've raised." In other words, Agrium has a strong shareholder that will be focused in increasing the price of the stock.
martinzaldua has no positions in the stocks mentioned above. The Motley Fool owns shares of American International Group and CF Industries Holdings and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend American International Group and eBay. 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.