California-Based Asset Manager Is Bullish On These Heavyweights

Includes: ADP, CLX, JNJ, KMB, TAP
by: Insider Monkey

By Alex Oleinic

Several weeks after the end of each calendar quarter, institutional investors are required to file their 13F forms with the Securities and Exchange Commission, where they have to disclose all of the holdings in their equity portfolios. One fund that has recently filed is West Coast Asset Management, administrated by Lance Helfert and Paul Orfalea. This is one of the funds we track and use in our quantitative models. You can find its original 13F here.

Why should we pay attention?

Quantitative research has discovered that everyday investors can benefit from watching hedge fund sentiment, and that's why we have selected the five most valuable stakes in the 13F portfolio of West Coast Asset Management. Our studies have shown that piggybackers can beat the market by as much as 18 percentage points a year if they know where to look (discover the secrets of this strategy here).

Top three picks

Molson Coors Brewing Company (NYSE:TAP) is the fund's largest stake in terms of value, worth almost $7.9 million. On the whole, West Coast AM has decreased its position in Molson Coors to 160,530 shares, from 179,730 shares at the end of the fourth quarter. The previous value of this stake was $7.7 million, though, and shares of the brewer have gained 15.7% year-to-date.

Of the 450 hedge funds we track, more than 20 held Molson Coors in their equity portfolios at the end of last year. Levin Capital Strategies, managed by John A. Levin, and Richard S. Pzena's Pzena Investment Management are two of the funds that were bullish in the fourth quarter, with much larger stakes in excess of 2 million shares each.

In the first quarter of 2013, net sales of Molson Coors advanced by a year-over-year rate of 19.8% to $828.5 million, which is solid, and there's value here too. Shares are trading at a forward P/E slightly below 12, which is 35% lower than any of the other eight other stocks in the brewery industry.

West Coast Asset Management also disclosed a $7.1 million position in Kimberly Clark (NYSE:KMB). According to the latest 13F, the fund reduced the number of shares in the holding to 73,045 shares from 81,165 shares. The value of the stake at the end of last year was $6.9 million. Kimberly Clark has a year-to-date return of above 23% and is trading at a forward P/E of 17.0x. For the first three months of 2013, Kimberly Clark reported earnings of $1.36 per share, against an EPS of $1.18 a year ago. For the entirety of 2013, the company raised its adjusted EPS expectations to $5.60-5.75, from a previous forecast range of $5.50 to $5.65.

In Johnson & Johnson (NYSE:JNJ), the fund disclosed a position worth $7.1 million, up from the previous value of $5.8 million. Lance Helfert and Paul Orfalea's fund was bullish on the company, increasing the number of shares invested to 87,086, from 83,282. Johnson & Johnson's stock is trading at a forward P/E of above 14, which is about average in comparison to its closest peers. Johnson & Johnson was found in the equity portfolios of more than 60 funds at the end of 2013, according to our database. The company expects earnings of $5.35-5.45 per share by the end of its current fiscal year. For the first quarter of 2013, Johnson & Johnson posted net earnings of $3.5 billion, and diluted EPS of $1.22; this beat expectations by nearly 3%.

The best of the rest

Clorox (NYSE:CLX) was also a holding in the equity portfolio of West Coast Asset Management. The fund has a stake worth $6.0 million, which is higher than $4.2 million reported in the previous 13F. Currently the fund owns 68,085 shares of Clorox, the position being raised from 57,235 shares at the end of December. Clorox, a company with a 100-year history, reported diluted EPS of $1.00 for the third quarter of its fiscal 2013, which represents a 2% declination year-over-year. In the entirety of 2013, Clorox anticipates diluted EPS between $4.24 and $4.35, and its initial forecast for FY2014 predicts a higher diluted EPS of between $4.55 and $4.70.

Automatic Data Processing (NASDAQ:ADP) is the last of the fund's top five stock picks. Lance Helfert and Paul Orfalea reported a position of 75,370 shares, worth $4.9 million. In the previous 13F, the fund disclosed a position of 83,485 shares, valued at almost $4.8 million. Automatic Data Processing is a company engaged in offering solutions for business outsourcing. Its stock has a year-to-date return of above 20% and isn't overly expensive, trading at an industry-average forward P/E of 21.5x. For the third quarter of fiscal 2013, Automatic Data Processing posted a diluted EPS from continuing operations worth $0.99, which represents a 9% increase from the same quarter a year earlier.

Final thoughts

West Coast Asset Management has a relatively small equity portfolio containing 13 positions in total; however, these holdings represent companies from five different sectors. It is clear in the fund's 13F filing that it holds strong conviction in each of its picks, and there aren't any overvalued momentum plays, just as there aren't any bargain bin stocks at risk of being value traps. On the whole, each of West Coast's picks represents a solid, fairly valued company, with steady growth prospects and decent support from the rest of the hedge fund industry (read here to learn more about the secrets of hedge fund piggybacking).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: This article is written by Insider Monkey's writer, Alex Oleinic, and edited by Jake Mann. They don't have any business relationships with any of the companies mentioned in this article and they didn't receive compensation (other than from Insider Monkey and Seeking Alpha) to write this article.