UBS Asset Management's Top Buys: 2 Potential Longs, 1 To Avoid
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UBS Global Asset Management (Americas), Inc. is a wholly-owned management subsidiary of UBS AG. It caters to individuals and institutions and manages ~$70bn in UBS series of funds. The firm follows both value and growth strategies utilizing bottom up fundamental analysis. The firm recently filed its form 13F with SEC. In this article, I will be discussing its top three buys (according to numbers of shares bought) from the last quarter.
Atmel Corporation (NASDAQ: ATML): My Take - Buy
UBS purchased 12,202,922 shares of Atmel last quarter. Atmel Corporation has underperformed the broader markets significantly since the beginning of this year. However, I believe things are likely to change going forward. The key reason for my bullish stance on the stock is the launch of Windows 8 by Microsoft (NASDAQ: MSFT) later this year. I am bullish on Windows 8 (see my bullish thesis here) and Atmel is well positioned to capture opportunity for Windows 8 tablets and Ultra books. Microsoft has announced only two Win8 touch co-partners since last September: Atmel & Synaptics. Atmel supports Touch Win8 screen sizes up to 13 inches which represents a significant opportunity for the company.
Although it might take some time to ramp up Windows 8 sales, I believe the current valuations of just 12.64x forward earnings provides a good opportunity to initiate a long position on the stock before the broader investment community starts chasing it. Also, the current valuation is at the low end of the company’s historical trading range (9x-30x) providing a good downside support for the stock and making the risk reward profile attractive.
MetroPCS Communications Inc (NYSE: TMUS): My Take - Avoid
UBS purchased 6,541,438 shares of MetroPCS last quarter. MetroPCS reported disappointing last quarter results, missing gross adds and margins significantly. MetroPCS has 94% of its 9.5 mn subscribers on its 2G CDMA network. Approximately 40% of its subscriber base is trying to use smartphone on this same network and are experiencing a sub 100 kbps speed. This is causing dissatisfaction among its customers and increasing churn risk. In order to retain customers, PCS is upgrading its’ dissatisfied 2G users to 4G which is hurting its margins.
In what appears to be a recurring story in the smaller US wireless companies, Metro PCS appears to be going on a trajectory similar to Sprint -- spending aggressively to add new customers and retain existing ones causing margin declines. This trend is unlikely to reverse in the near term and I find it very difficult to make a buy case for the company in this environment. The only upside case I see for the company is it receiving an attractive buyout offer from a bigger player. However, I don’t like speculating on M&A opportunities and would prefer remaining on the side-lines.
Juniper Networks, Inc (NYSE: JNPR): My Take - Buy
UBS purchased 5,587,231 shares of Juniper last quarter. Juniper recently delivered an impressive beat breaking a string of disappointments from the last few quarters. Although, the company’s Q2 guidance was a bit below expectation, I believe it has more to do with conservatism on the part of management given the limited visibility in the near term.
Juniper has likely hit the trough in its business in the last quarter. Going forward, a second half ramp up in carrier spends as well as traction in newly launched products is likely to help the company’s top line. Company’s major new products: T4000, PTX and QFabric started contributing to the company’s revenue in 1Q12 and their contribution is likely to increase in rest of the 2012 and 2013. From the margin perspective also, the worst is likely over for the company. While T4000 is likely to improve the mix and gross margins, ramp ups in QFabric and PTX along with the capex rebound in telecom carriers will drive operating leverage, lifting up operating margins.
In the long term, Juniper stands to benefit from growing network traffic thanks to rapidly increasing demand for data. At current valuation of ~15x forward PE and ~$3 per share of excess cash, I believe Juniper’s stock is a good buy.
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