4 Stocks That Value Portfolio Managers are Watching Now

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 value 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. 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 Qualcomm (NASDAQ: QCOM). Apple and Google can fight against each other to gain mobile market share, but Qualcomm benefits from both. The launch of iPhone 5 is a big positive for Qualcomm, as it is driving up chip ASPs, chip margins, device ASPs, and royalty revenues.  I think that Qualcomm results will grow from iPhone 5 and Galaxy S3 royalty strength, and keep getting stronger in 2013 as the company introduces its latest 28 nm chips into emerging markets at higher average selling prices.

Qualcomm is one of the best big cap tech stories, considering the future growth of 4G LTE, iPhone 5 and both Android mobile and tablet devices. Qualcomm recently reported a strong quarter driven by solid shipments of MSM chips at higher ASPs. Also, the company is bullish on 3G/4G growth and its prospects in emerging market economies. In fact, Qualcomm remains a beneficiary to the significant growth of 3G wireless technologies and smartphones in emerging markets, particularly in China. I am very positive on the QCOM Snapdragon platform, as it is used in both Apple's iPhone 5 and Android-based 3G smartphones, plus tablets, and has become the new standard in mobile devices.

Top value managers seem to agree with me. For example, Tiger, Viking Capital, Appaloosa, Fisher, Soros and Greenblatt bought QCOM last quarter at an average price of $61.5, exactly the same as the stock current price. In other words, they think that current prices are still attractive entry points.

The second pick Bank of New York (NYSE: BK). This is one of the best capitalized banks, considering its reported Tier 1 capital of 14.7%, total capital of 16.4%, and leverage of 5.5%, well above the regulatory requirements. The company is also repurchasing its own shares, a sign of shareholder-oriented management. The company will repurchase up to $1.16 billion of stock through the first quarter of 2013, after BK repurchased 12.2 million shares for $286 million in Q2. As Warren Buffett explained, I like companies that buy back its own shares. I think that BNY Mellon shares trade at a very reasonable 11x P/E, and its 0.8x P/BV is a 20% discount to the industry average of 1x. Value investors Warren Buffett, Eveillard, Brandes and Dreman like Bank of New York.

Intel (NASDAQ: INTC) is a company that was bought by lots of value oriented portfolio managers, but I recommend treating this stock with extreme caution. The company reported 3Q 2012 financial results that beat its negatively pre-announced ranges from early September, but were still weaker than initially expected and reflective of weak global PC demand. This trend is fueled by cannibalization of sales by smartphones and tablets. Intel also guided revenues worse than the Street and disappointed on its reported pro forma gross margins.

The problem with Intel is that I still have no clarity on how much of its revenue weakness came from a structural or secular cannibalization, or was just a short-term impact from the coming launch of Windows 8. The other problem comes from Intel inventories. In the recent call, management told investors that inventory levels remain too high (+34% year over year), and the unit volume that was expected for September did not materialize. While the company is solid and has a strong management team, I would recommend caution. In the last reported quarter, portfolio managers John Hussman and Michale Price added to their existing positions.

Avon (NYSE: AVP) is an interesting long-term turnaround play. Ed Lampart and Ken Fisher recently initiated a position in the stock. This company must also be treated with extreme caution and a long-term focus. The company has been showing sub-par results because it lost focus on representative growth and has an unfavorable product mix. Management is focused on stabilizing the business and returning Avon to sustainable growth, and has set financial goals of mid single-digit constant-dollar revenue growth and a low double-digit operating margin over the next three years. AVP has the team fully aligned around actions that will accelerate top-line growth, reduce costs and improve working capital. If only a small part of the transformation proposed by management is achieved, then AVP will not only be a good cash flow generator for shareholders through dividends, but also a great M&A candidate.

One strong and growing technology company, one well capitalized bank and two potential turnaround stocks; which one will you select ? It is always important to keep track ofhedge fund holdings and analyze the fundamental story of each stock. In this case we have stocks for almost any kind of investor. 

martinzaldua has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel and Qualcomm. Motley Fool newsletter services recommend Intel. 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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