By Matt Doiron
Many large institutional investors are required to file 13Fs with the SEC within several weeks after the end of each quarter, disclosing many of their long equity positions in U.S. stocks as of the end of that quarter. William von Mueffling's Cantillon Capital Management has already published its filing for the first quarter of 2013, allowing us a fairly comprehensive and fresh look at the fund's long portfolio. Read on for our quick take on Cantillon's five largest holdings by market value as of the end of March, see the full 13F from the SEC, or compare the fund's picks to previous filings.
The largest position in Cantillon's portfolio was its over 10 million shares of Oracle (ORCL). Oracle's revenue and earnings were both roughly flat in the third quarter of its fiscal year (the quarter which ended in February) versus a year earlier. The software company is currently valued at 15 times its trailing earnings, with Wall Street analysts expecting considerable growth in earnings per share over the next couple years as implied by a forward P/E of 11. That multiple looks low, but given recent performance, we think that we'd have to see better results from the company before considering it as a value stock.
William von Mueffling and his team reported ownership of about 410,000 shares of Google Inc (GOOG), about even with what the fund had owned at the end of December. Google had been one of the most popular stocks among hedge funds in the fourth quarter of 2012, according to our database of 13F filings (find more stocks hedge funds loved). Google's trailing earnings multiple is high, at 24, but the company has some potential upside from improved integration of Motorola Mobility Holdings (and the expansion of the tablet and smartphone industries) as well as continued growth in its core advertising business. The stock trades at 15 times forward earnings estimates.
Cantillon added shares of Analog Devices (ADI) between January and March and closed the first quarter of 2012 with 6.7 million shares in its portfolio. The $13 billion market cap semiconductor company pays a dividend yield of 3.1% at current prices, though there are other tech companies with yields in a similar range and Analog Devices has been struggling recently. The business experienced small declines on both top and bottom lines in its most recent quarter compared to the same period in the previous fiscal year, yet the market is giving it a fairly high valuation with a trailing P/E of 21.
Coca-Cola (KO) was another of William von Mueffling's top picks, with the filing showing that the fund owned 7.2 million shares at the end of March. Coca-Cola also pays a decent dividend yield, at a little under 3%, and with a beta of 0.4 it is a common example of a defensive stock. However, it does look a bit expensive to us, with trailing and forward P/Es of 20 and 17 respectively. The company would have to deliver high earnings growth rates for several years to prove undervalued at that price, and so we would recommend that investors look at other consumer staples stocks instead.
According to the 13F, Cantillon owned 1.9 million shares of Colgate-Palmolive (CL) at the end of the first quarter of 2013. In its last quarterly report, revenue grew only 3% compared to the fourth quarter of 2011 and net income was up only 1%. As with Coca-Cola, however, investors seem to be bidding up the stock price in search of safety (Colgate-Palmolive's beta is 0.3) and a moderate dividend yield (of a little over 2%). As a result the stock is valued at 18 times consensus earnings for 2014, which seems too high for a company which has not been growing much.