6 Buys From Australian Hedge Fund Manager Kerr Neilson

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Includes: AMAT, AMD, CEO, CSCO, DOX, EJ, GILD, INFN, IP, JNJ, MRK, MRVL, MSFT, NEM, PEP, SKM, SWC
by: GuruFundPicks

Summary: Called by the Financial Times as Australia's Warren Buffet, hedge fund manager Kerr Neilson manages over $16 billion in assets, including $3.4 billion in U.S. equities. Six attractive U.S. equity buys from his portfolio include Infinera Corp. (NASDAQ:INFN), Marvell Technology Group (NASDAQ:MRVL), Advanced Micro Devices (NYSE:AMD), Gilead Sciences Inc. (NASDAQ:GILD), Pepsico Inc. (NYSE:PEP) and Nexen Inc. (NXY).

Sydney, Australia-based hedge fund Platinum Investment Management Ltd., led by co-founder and portfolio manager Kerr Neilson, manages $16 billion in global investments, mostly invested in equities, including $3.4 billion in U.S. equity assets. A native South African, Neilson started his career in London, then moved back to South Africa, and then to Australia where he established Platinum Investment Management Ltd. with initial backing from another hedge fund billionaire George Soros. He is estimated to be worth $2.2 billion, ranking him as the eighth richest person in Australia. Neilson is a value investor and has been called by the Financial Times as "Australia's own Buffett" for his ability to consistently select high-performing stocks, and like Buffett, he too avoids "fashionable stocks" investing instead in "good companies, relatively cheap, over the long-term."

The fund holds a moderately diversified portfolio of 75 positions, with 60% of its holdings in large-caps, 30% in mid-caps, and the remaining 10% in small-caps. Its portfolio turnover is 30%-35% implying an average holding period of three years. Based on the most recent SEC 13-F filing for the March 2011 quarter, we determined that the portfolio is over-weight basic materials (23%), technology (36%) and healthcare (18%) sectors, and it is under-weight all other sectors, compared to the weighting of these sectors in the overall economy.

The following summarizes its largest new buys and sells in the latest reported 13-F filing for the March 2011 quarter, and updated based on any 13-G filings since the end of the quarter:

  • SEC Forms 13-G: Buy Infinera Corp. Subsequent to the end of the quarter, Platinum filed SEC-13G form for Infinera Corp., a supplier of photonics ICs for fiber optic networks, indicating their passing the 5% ownership mark in the company. Including the purchase made during the quarter, Platinum has now added $46 million in that new position since the end of the December 2010 quarter. INFN trades at $6 down more than 50% and is at all-time lows; it has over $2.50 in cash, and analyst targets are in the $8-$12 range. Furthermore, in the last March 2011 quarter it beat both revenue and earnings estimates and is down almost 30% since then, making it an attractive buy at these levels. Also, subsequent to the quarter, they filed a 13-G indicating their 5% ownership in Stillwater Mining Co. (NYSE:SWC), engaged in the development, processing, and refining of palladium, platinum, and other associated metals, and in E-house Holdings Ltd. ADS (NYSE:EJ), a Chinese provider of real estate agency, secondary real estate brokerage, consulting and information services.
  • Technology sector: Buy Marvell Technology Group and Advanced Micro Devices. Platinum cut $155 million from its $1.3 billion prior quarter position, including cutting $121 million out of their $155 million position in networking and communications hardware company Cisco Systems Inc. (NASDAQ:CSCO), cutting almost all of their $71 million position in semiconductor equipment company Applied Materials Inc. (NASDAQ:AMAT), adding $48 million to their $71 million position in microprocessor designer Advanced Micro Devices, and opening a new $57 million position in fabless semiconductor company Marvell Technology Group. MRVL reported a good quarter in late May, and the stock is trading at a forward price-to-earnings (P/E) ration of 8, near the bottom of its historic trading range; furthermore, analyst targets for MRVL are in the mid-$20s, making it an attractive buy in the $13s where it trades right now. The position in CSCO was opened the low-$20s at the end of 2010, and they have been wrong since as the stock has traded lower into the $15s, so their sell does not have much informative value. The position in AMD was opened in the $8 range at the end of 2010. AMD trades at a forward P/E of 9 based on projected fiscal year December 2012 earnings, at the bottom of its historic P/E trading range. Furthermore, analyst targets for the stock are in the low- to mid-teens making it an attractive buy here.
  • Basic materials sector: Platinum cut $100 million from its $820 million prior quarter position, including cutting $60 million from gold mining company Newmont Mining Corp. (NYSE:NEM).
  • Healthcare sector: Buy Gilead Sciences Inc. Platinum added $60 million to its $500 million prior quarter position, including adding a new $106 million position in biotech Gilead Sciences Inc. and selling $38 million of their $174 million in pharmaceutical giant Merck & Co. (NYSE:MRK). GILD is trading at a forward P/E of 10, well below the bottom its historic P/E trading range, and is projected to grow earnings at modest high-single and low-double digit rates. Although near-term problems remain in terms of recent disappointing quarter results, the stock is a compelling long-term buy at these levels.
  • Consumer non-cyclical sector: Buy Pepsico Inc. Platinum added $120 million to its $40 million prior quarter position, including adding $108 million to their prior $15 million position in Pepsico Inc. PEP trades at an attractive forward P/E of 15, near the bottom of its historic trading range. Furthermore, earnings are expected to continue growing in the high-single and low-double digit rates, and analyst targets are in the high-$70s and $80 range, making it an attractive buy candidate, especially on a pullback to the mid-$60s.
  • Energy sector: Buy Nexen Inc. Platinum added a new $77 million position, their first in the sector, in Nexen Inc., a Canadian company engaged in the exploration and production of crude oil, natural gas, sulfur and chemicals. The stock trades at a forward P/E of just over 5 based on projected fiscal year December 2012 earnings of $4.04, which is at the bottom of its historic P/E trading range. Furthermore, the stock has dropped 30% from its peak recently mimicking the overall weakness in the sector, and is an attractive buy at these levels.

Table

Company

Ticker

Action

Market Value at end of March 2011 Quarter

Change in Value from Prior Quarter

Percent of Portfolio

Percent Shares Owned

New 13G 5% Ownership Filing Since End of March 2011 Quarter

Infinera Corp.

INFN

New

$ 46 million

$46 million

1.32%

5.26%

Stillwater Mining Co.

SWC

Add

$ 124 million

$123 million

3.56%

5.30%

E-house Holdings Ltd.

EJ

Add

$ 48 million

$26 million

1.38%

4.95%

Top Buys and Sells

Cisco Systems Inc.

CSCO

Cut

$ 155 million

($121) million

4.43%

0.16%

Pepsico Inc.

PEP

Add

$ 123 million

$108 million

3.54%

0.12%

Gilead Sciences Inc.

GILD

Add

$ 106 million

$106 million

3.04%

0.32%

Nexen Inc.

NXY

New

$ 93 million

$93 million

2.67%

0.71%

Applied Materials Inc.

AMAT

Cut

$ 0 million

($71) million

0.01%

0.00%

Newmont Mining Corp.

NEM

Cut

$ 52 million

($60) million

1.50%

0.19%

Marvell Technology Group

MRVL

New

$ 57 million

$57 million

1.63%

0.60%

Advanced Micro Devices Inc.

AMD

Add

$ 119 million

$48 million

3.42%

2.02%

Merck & Co Inc.

MRK

Cut

$ 137 million

($38) million

3.91%

0.13%

Amdocs Ltd.

DOX

Cut

$ 40 million

($36) million

1.14%

0.74%

SK Telecom Ltd.

SKM

Cut

$ 34 million

($35) million

0.98%

0.25%

Top Holdings

Intl Paper Co.

IP

Cut

$ 286 million

($14) million

8.21%

2.17%

Johnson & Johnson

JNJ

Same

$ 268 million

$0 million

7.67%

0.16%

Microsoft Corp.

MSFT

Cut

$ 256 million

($15) million

7.35%

0.12%

Click to enlarge
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are my 'opinions' and I may be wrong. I may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to my thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

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