4 Stocks that Top Investors Recently Bought
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 I explained in one of the blog posts at Warren Trades, top value managers have more resources and information available to analyze companies than any individual investor has. In general, they do not buy stocks for day-trading 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.
Michael Kors (NYSE: KORS) is one of the top retail growth stories. Both Lone Pine Capital and Blue Ridge bought the stock last quarter at an average price of $42. It is very difficult to find a retail story with the level of growth that KORS is experiencing. Basically, I am bullish on Michael Kors's ability to capture the growing worldwide demographic of luxury consumers, as the worldwide millionaire population is expected to grow 73% by 2020, and spending growth in emerging markets is a secular growth trend.
In the most recent quarter, revenue from the European business more than doubled relative to the same quarter the year before (even with a deepening European crisis). Profit margins for the most recent quarter remain strong at 60.5%, and EPS came in at $0.34, compared to a consensus estimate of $0.20 EPS. I think Michael Kors is a good long term investment because the brand has plenty of growth opportunities in North America, but especially in Europe and Asia. In North America, KORS comparable store sales rose a strong 38.4%, reflecting the solid appeal of the Michael Kors brand, the company's consistent delivery of a compelling assortment of luxury products, and an exciting jet-set in-store experience. Kors also reported a whooping 66% growth in its wholesale segment, which is the result of the continued conversions to shop-in-shops in department stores.
Ralph Lauren (NYSE: RL) is another interesting retail stock. However, its growth metrics are lower than those of Kors. Recently, UBS raised its target for RL to $185 from $180. UBS analyst believes that revenue growth can re-accelerate in the last part of the year and stay at 9% in FY14 & FY15, driven by new categories (handbags, home, men's accessories) and brand growth in the US.
Ralph Lauren has enjoyed excellent revenue growth from operations over the last four years. Specifically, since fiscal year 2009, operating income has increased at an annual compound rate of almost 15%. Valuation is very reasonable, at a forward P/E of 15x and a current PEG of 1.4. I think that Ralph Lauren's growth will continue in the next years as management executes its expansion strategy in terms of store growth and e-commerce presence into new markets. Top value portfolio managers Steve Mandel (Lone Pine Capital) and Lee Ainslie (Maverick Capital) bought a stake in the company at an average price of $157.
Westport Innovations (NASDAQ: WPRT) is a speculative energy play that was bought by Blue Ridge Capital and Soros Fund Management at an average price of $30. The company recently reported earnings that missed expectations. but management is confident that recent announcements to bring a new Cummins Westport 6.7 litre engine to market, targeting school buses for natural gas conversion, and an innovative new engine with Tata, will prove the thesis that virtually all segments of the transportation market will see significant opportunity for natural gas this decade.
In fact, I read an interesting report on the Westport website about the natural gas industry. The natural gas vehicle (NGV) industry is a large and rapidly growing market. According to NGV America, as of May 2011 there are more than 13 million natural gas vehicles in use worldwide, including approximately 112,000 operating on U.S. roads. The International Association of Natural Gas Vehicles projects that there will be more than 50 million natural gas vehicles worldwide within the next ten years, representing approximately 9% of the world transportation fleet. According to Westport Investor Relations site, one of the primary drivers accelerating NGV adoption is the increasing price stability advantage that natural gas has over petroleum. I believe that rising demand for oil will result in price increases and/or fuel shortages, which will continue to create favorable market conditions for adoption of cheaper alternative fuels such as natural gas.
Westport leverages its proprietary technologies by partnering with leading diesel engine and vehicle original equipment manufacturers (OEMs) to develop, manufacture, and distribute natural gas engines to a diverse group of global vehicle OEMs. Despite its recent weak results, Westport has recently seen considerable growth. Westport has many technical advantages that moved it from a startup company to the market leader. I think that Westport is a very interesting energy play, but my technical analysis is not giving me the green light to buy the shares at this moment.
Kinder-Morgan (NYSE: KMI) is the largest midstream and the third largest energy company in North America, with a combined enterprise value of approximately $100 billion. This is not a small speculative play like Westport Innovations. Leon Cooperman's Omega Advisors and Steve Mandel's Lone Pine each bought a stake at an average price of $34.5. I think that the recent El Paso acquisition may be positive for KMI overall business. I basically view the $38 billion El Paso acquisition as a transformative transaction for KMI. Why? El Paso expands Kinder Morgan's footprint into key gas end markets, provides cash-flow stability, and enhances the company's dividend profile. After acquiring El Paso, Kinder Morgan posses 3 high quality energy assets, each of which is experiencing growth.
martinzaldua has no positions in the stocks mentioned above. The Motley Fool owns shares of Kinder Morgan and Westport Innovations. Motley Fool newsletter services recommend Kinder Morgan and Westport Innovations. 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.