By Jake Mann
Although the majority of hedge funds and other prominent investors won't file their third quarter 13F forms until the middle of this month, one firm is ahead of the pack, so to speak. Louis Navellier's Navellier & Associates has released the contents of its new Q3 equity portfolio this week in a filing with the SEC, and it's safe to say there are more than a few surprises. Let's take a look at Navellier's top three stock picks, because it can pay off to track the smart money's best and brightest (learn why here).
Alexion Pharmaceuticals (ALXN) is Louis Navellier's new No. 1 stock holding. Shares of the biopharmaceutical company represent 3.65% of the firm's equity portfolio, a significant increase from the 0.03% mark one quarter earlier. Navellier joins Viking Global, Citadel (see its historical filings here) and Healthcor Management as decently large shareholders of Alexion stock, which has returned 27.3% year-to-date.
Aside from the novel exposure that Alexion gives investors to antibody therapeutics like Soliris and eculizumab in particular (Soliris' active ingredient), the company also offers growth prospects above similarly sized healthcare large-caps. The sell-side expects Alexion to generate earnings expansion of 24% to 25% a year over the next five years, and shares aren't particularly overvalued at 35 times forward EPS.
Judging by Navellier's decision to boost his holdings by nearly sixfold, it's likely he's bullish on these prospects. Going forward, we'll be watching three things at Alexion: (1) its ability to expand Soliris sales in BRIC nations, (2) its willingness to use eculizumab to treat various rare diseases in addition to PNH, a blood disorder, and (3) its capability to use the asfotase alfa drug of Enobia, which it bought last year, to treat hypophosphatasia, a rare bone disease.
Apple (AAPL), meanwhile, is an entirely new position for Navellier & Associates. The firm's stake in Apple amounts to just over 3.5% of its equity portfolio, or $74 million, which would place it in the top 30 or so of the funds we track. As is the case with many of Navellier's top investments, Apple's growth prospects are elite, and they're fairly priced, if not a bit cheap; shares of the tech giant trade at a PEG of 0.9.
Reactions to Apple's latest fourth quarter earnings have been mixed, but one analyst's thoughts resonated with us in particular. In a note sent to this Apple news site, JPMorgan's Mark Moskowitz revealed that immediately following the earnings report last week, he upped his price target to $600 (by December 2014) on the back of Apple's iPhone 5s sales that were above forecasts, the potential of the iPad Air, and its gross margin outlook. Regarding the latter, the company expects 36.5% to 37.5% in gross margins next year, which Moskowitz calls "good enough for long-term investors."
Remember that Apple also pays a solid dividend yield of 2.3% at a payout ratio of less than 30%, and don't forget about Carl Icahn's $1,250 price target that's dependent on a $150 billion share buyback. Even if Icahn can't convince Tim Cook to follow his plan, it would make sense that Navellier is envisioning a floor near Moskowitz's price target at the very least.
Equinix (EQIX) sits at No. 3 in the investment firm's equity portfolio now, after receiving a massive boost in the third quarter. In his second quarter filing, Navellier disclosed a new $225K position in the IT services company, and after looking at the latest data, we can see that this stake is now worth almost $70 million.
Shares of Equinix are down 21% year-to-date, so it's clear Navellier isn't buying the stock for its recent performance, nor is it valued particularly cheaply. Rather, like each of his two aforementioned holdings, Equinix's main point of attraction to any bull is likely its growth prospects.
Wall Street expects Equinix to more than double its earnings next year before settling into a 23% to 24% annual average through 2018, primarily on the back of its market positioning. The company is the world's biggest player in the network-neutral data center space, and long-term IP traffic growth, particularly from cloud services, is worth watching.
Lastly, it is possible that Navellier is bullish on Equinix because of a REIT conversion planned for the beginning of 2015. Last year, the company's board approved a plan to convert its data center properties to a REIT structure, and before such a conversion can take place, Equinix will also need to pay a special of something close to a 10% yield.
Obviously, any decision by the IRS to delay or refute Equinix's REIT status may sink shares, but IT peers like CyrusOne (CONE) have been allowed such a conversion in the past, so an outright denial simply doesn't make sense. Navellier & Associates would likely agree.