Analyzing a Hedge Fund's Shorts
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Alliance Bernstein L.P. is an investment advisory and a hedge fund firm managing ~$150 billion in equity assets. I discussed some of the top buys of Alliance Bernstein in a previous article. In addition to buys, it is also interesting to have a look at the top stocks where Alliance Bernstein is booking profits and selling its holdings.
In this article, I take a closer look at three stocks where Alliance Bernstein reduced its position significantly in the last quarter.
Lowe's Companies (NYSE: LOW)
Alliance Bernstein sold 10,564,347 shares of Lowe’s last quarter. Lowe’s has underperformed its peer Home Depot’s (NYSE: HD) Same Store Sales each quarter since 2Q2009. Lowe’s April comp underperformed Home Depot by 560 bps, the widest monthly gap since November 2010. In addition to the poor sales results, Lowe’s gross margins contracted 75 basis points year-over-year to 34.7% of sales last quarter. I remain bearish on the Lowe’s prospects going forward. I remain concerned about the rate of recovery of housing markets and Lowe’s oversized network. Although, Lowe’s is trading at a discount to Home Depot, I believe it is justified and there is a further downside possible if it continues to lose market share and underperform versus Home Depot.
Dell (NASDAQ: DELL)
Alliance Bernstein sold 10,206,898 shares of Dell last quarter. Dell missed the consensus expectations last quarter with its PC business showing the most significant downside. Revenue declined 4% year-over-year from weak execution, macro weakness, shift from consumer notebooks toward tablets and intense pricing competition, particularly in consumer notebooks in emerging markets. Margins also declined more than expected and Dell consumed cash for the first time since F3Q08 (October).
Dell’s results and commentary around tablets suggest that Apple (NASDAQ: AAPL) continues to disrupt the traditional PC market and gain momentum through tablets (iPad) and smartphones (iPhone). Dell’s PC business is challenged due to the rise of Apple and this is likely to continue going forward. Given the expected strengths of new Apple products in the 2H12 and the secular issues in PCs, I recommend a sell on the stock. Apple, with much better consumer adoption, is trading at less than 9x forward earnings (adjusted for cash) and makes a good buy in IT hardware space compared to Dell.
Delta Air Lines (NYSE: DAL)
Alliance Bernstein sold 8,524,427 shares of Delta last quarter. I don’t agree with Alliance Bernstein on Delta. Delta is trading at ~5.15x 2012 EPS and ~4x FCF. It appears that investors believe that 2012 will be the peak year for Airline profitability. However, I don’t agree with them and believe that economic recovery will continue to drive stock price higher. Airline industry is in a good shape given tight supply, a moderating jet fuel futures curve, and still firm booking trends. Delta is trading at a discount to its peers which is not justified given DAL has much less labor (non-union) and merger risk than peers (UAL/CAL, LCC/AMR).
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