By Eric Winter
Possessing a model diversified portfolio, David Harding's Winton Capital Management has sought a well-balanced portfolio with almost equal investments in Basic Materials, Healthcare, Technology, Utilities, Financials, and Consumer Goods. Following a similar investing mantra as Jim Simons' Renaissance Technologies, Winton Capital recently rolled out some of its newest positions in the fund's latest 13F filing from September of 2012. This report highlights Harding's current portfolio and gives us valuable insight as to areas where he is chasing new value.
First up is Interpublic Group of Companies (IPG), a global player in the advertising, communications, and marketing services industry. With notable sub-agencies like McCann Worldgroup, Lowe, and Mediabrands, IPG has a strong foothold in its landscape and is now branching into the mobile gaming and advertising medium to further add value. The stock had one negative earnings stumble in 2012 and a recent downgrade from Morgan Stanley on January 11th, but most analysts are overwhelmingly bullish on the media giant, coming together to form a mean price target a year out that could spell a 10% gain if bought at current levels near $12.
Harding's second largest recent addition was in LyondellBasell Industries NV (LYB), a chemical, plastics, and refining company possessing a hefty $36bn market cap. The stock was a huge payday to investors who got in last year, returning almost 60%. Harding may be chasing the dividend with this play, as LYB has a yield of 2.6% and announced a special dividend and interim dividend in November of last year. The dividends amounted to $3.15 total, and as long as Harding held his position a month and a half from his September 13F filing, he received that handsome sum in December, possibly attributing to a bump in performance for his upcoming filing upcoming filing.
Winton Capital made a further foray into the consumer goods sector with an investment in Beam, Inc. (BEAM), a premium spirits company that sells worldwide. BEAM has taken expansion seriously in the past two years, purchasing Pinnacle Vodka and Calico Jack Rum in June of 2012. Despite these capital acquisitions, BEAM continued to report positive and growing earnings last year, surprising every quarter and earning upgrades from the likes of Morgan Stanley and Argus. While analyst reception is fairly positive, BEAM may be overvalued relative to earnings, and high P/Es affirm this. We would like to see more brand expansion and globalization before hopping in, but we like where BEAM is heading.
Harding's fourth major new purchase was Starwood Hotels & Resorts: (HOT), operating famous hotel brands such as the Westin, Sheraton, and St. Regis. Hotel and leisure stocks have not been in vogue with investors and analysts since the recession, citing high debt, operating costs, and the cyclical nature of the industry. However, HOT has significant market share and brand loyalty, and Starwood's stock still managed to return a modest 11% last year, slightly below the S&P 500's 13%. The Street has reigned in their expectations for HOT going into its next earnings period, registering multiple downgrades (most dropping only from buy to hold, however). Dividend yield is a respectable 2.1% however, so value players can collect some income while they wait this play out.
The final largest addition to Winton's portfolio was WPX Energy (WPX), an independent natural gas and oil exploration and production company. Of the five stocks mentioned, WPX was the only to return a loss in share price since the beginning of 2012, mirroring the same negative performance of oil and gas in the same time period. WPX has also had difficulty returning positive earnings, only doing so once in early 2012, contributing to negative quarterly revenue growth year over year. Regardless, Harding may be tapping into the knowledge of analysts who are expecting a high share price a year from now, possibly netting an investor up to 32% if they are collectively right.