Analyzing Partner Fund’s Favorite Picks

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

13 F filings give us an idea about which stocks are being preferred and are being positioned at what place by the Hedge Funds. Looking at the filing by Partner Fund management I found that this Hedge Fund has purchased a new stake in Coach (NYSE: COH) of 3,246,866 shares representing 9.46% of its total portfolio and is now placed at the third position. Partner Fund Management is known for its fundamental analysis using the bottom up approach for its portfolio. Its other favorite picks were Deere & Co and V.F. Corp.

Let's first pick Deere & Co and V.F. Corp and see how they have planned their future strategies:

Deere & Co (NYSE: DE): Partner Fund Management has purchased a new stake in Deere & Co a leading manufacturer of agricultural and forestry equipment by buying 1,492,438 shares which is 6.4% of its total portfolio. Deere & Co captures 50% of the market share with its focus on bigger non-residential and infrastructure construction contractors. The company has a dominant position in the United States and Canada in the farming equipment field as it’s ~60% sales is contributed to by these markets only. Its construction equipment sales are going good making it North America's second biggest player. With an expected growing demand of 1.76 million units in construction equipment in 2018 Deere has a huge potential to grow in this segment. Over the last five years, the company has increased its payout by ~14% and given an impressive dividend yield of 2.1%.

V.F. Corporation (NYSE: VFC): Partner Fund management took a new stake of 295,748 shares in V.F. Corp representing 2.45% of its total portfolio. The company posted 14.5% revenue growth y/y and its Outdoor and Action Sports segment brands The North Face and Vans maintain a leading position in their respective categories which are its top acquisitions and are expected to show a huge 58% growth in 2015. The company's store count has reached to 1,101 as compared to 1047 in 2011. With its established position in Europe and China it is increasing its presence in India, Brazil, Eastern and Central Europe. The company is expected to generate ~4.3 billion from this expansion. The company is now increasing its focus on the E commerce and Direct-to-consumer approach. V.F. Corp has a strong balance sheet with $305 million cash in hand with 40% of payout plan.

Now let’s check out what made Coach (NYSE: COH) to gain a position among the top five holding companies in Partner Fund Management. As per the Market Watch report Coach has been ranked at the no. 4 position as America's most profitable stores among the nine successful retailers. Last year the company posted $4.76 billion in revenue which was much higher than any other retail company in the list except Apple and Tiffany. Coach is divided into three segments (handbags, Accessories, and other products) among these its handbag segment is the main revenue generator for the company.

The company with its efficient merchandising and brand image is gaining popularity in America and Japan which are its key areas. Below are the trends discussed which will fuel Coach's earnings in the long term:

International Opportunity: While maintaining a respectable position in North America and Japan Coach also focuses on China for its growth. With the growing population in that country there has been a significant increase in HNIs (High net worth individual) who spend a lot of money on luxury goods. This region contributed 6% to the sales and it is expected to generate $400 million in 2013 compared to only $315 million last year while in the last quarter it grew by 40%. Coach purchased business from wholesale partners in Singapore, Malaysia, Korea and Taiwan to make the directly operated model and made heavy investment in merchandising and marketing to match its standard with Coach's other stores.

Lifestyle Brand, Men's segment and Handbag remains attractive: Handbags and small leather goods contribute majorly to Deere’s sales but Coach is broadening its horizon in wider lifestyle brands like outerwear, watches, and footwear in existing as well as new regions. After improving its women segment the company is shifting its focus on the men's segment as sales in this segment increased 2x to $400 million globally and it expects $600 million sales in 2012 compared to $400 million in 2011. Handbag remains Coach's key area, which contributes a cool 63% to the net sales of the company, and with this performance Coach maintains an optimistic outlook and robust growth prospect in the Handbag segment.

To conclude, Coach will continue to grow in the United States (with $10 billion) and Asia ($12 billion) at a great pace. China remains its largest growth opportunity as currently it has ~96 stores and will be opening 30 more stores at the end of 2012. The Company has started remodeling its top department stores to attract more customers whereas marketing efforts have been accelerated in order to boost sales in these regions. The Company is also planning to take its footwear segment to an upper level as till now the company had a lower end sneaker line which will be upgraded to the accessible luxury level. These fundamentals give the company an expanded profit margin outlook in the long term.

 


ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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!

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