Top Picks of Odey Asset Management
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Odey Asset Management Group, which was founded in 1991, manages a portfolio of over $6.7 billion. Odey Group has been one of the most successful funds on the street, and according to its recent filings, it has huge positions in the following stocks.
KB Home (NYSE: KBH) is a US based residential construction company, and its shares are up by 99.3% over the last 6 months. Despite the run up, analysts believe there’s still 17%-20% upside left. The company had reported a 16% increase in revenues with net income of $0.04 per share and ended the quarter with $467 million in cash and cash equivalents. Analysts estimate the Q4 net income to be $0.06 per share, which is a massive 50% increase on a sequential basis.
On Dec. 13, the management announced its plans to develop more than 100 luxury homes in its coastal community “Playa Vista.” The management also told that it has already purchased the required land from Brookfield Residential Properties, and plans to develop three story detached luxury homes and condominiums, with an area of up to 2,800 sq. ft. The company ended Q3 with a backlog of $744.7 million and the Playa Vista project would only fatten its order book. Its construction is expected to begin in early 2013, and since Playa Vista is located in a prime locality, we can safely expect heavy pre-launch bookings.
CF Industries (NYSE: CF) is poised to grow in 2013, as the new corn plantation would require nitrogen based fertilizers. YTD its shares are up by nearly 35%, but its P/E is still below 7.5x. This is mainly due to solid financial performance in the previous quarters. It’s P/FCF equates to a healthy 7.9x and with a decent quick ratio of 2.53x, the company wouldn’t be having any problems with its short term unplanned expenditures. CF Industries retains 94.3% of its earnings, has a debt/equity ratio of 0.29x and enjoys a net profit margin of 31.77%, which altogether indicate sound fundamentals.
The company recently announced a share repurchase program worth $3 billion, which would further bolster its earnings per share. Additionally its board recently approved a $3.8 billion expansion plan which would allow two of its facilities to produce up to 2.6 million tonnes of granular ammonia per year. According to several polls, the average price target for CF Industries is $239, which means its shares could still appreciate by 20%.
Wells Fargo (NYSE: WFC), one of the conservative banks, also boasts of attractive fundamentals. Trading at a forward P/E of 9.63x with a PEG just over 1x, its shares appear to be undervalued. YTD is shares have risen by 22% but its trailing P/E is still below 11x. This indicates that the earnings growth was not matched by its stock appreciation (despite the 22% rally). The average price target set by analysts is still 15% higher than the current price.
However I believe that Wells Fargo can go beyond the median price estimates, as the bank's portfolio is more inclined towards residential real estate. These estimates do not weigh the recent housing sector boom, which is why we can safely expect stronger earnings in the coming quarters. Additionally, the shares of Wells Fargo yield a decent 2.52% with a modest payout of 24.21%. Also its debt equity ratio of 85%, is significantly lower than the industry average. In my opinion, investors should look to buy Wells Fargo as it makes a great fundamental pick.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool owns shares of CF Industries Holdings and Wells Fargo & Company. Motley Fool newsletter services recommend Wells Fargo & Company. 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!