Analyzing AllianceBernstein's Top Buys

Includes: ANTM, C, DOW, KR, LOW, MET, QCOM
by: Rash Menaria

AllianceBernstein L.P. is an investment advisory and hedge fund firm managing ~$150 bn in equity assets. The firm manages the AllianceBernstein series of mutual funds in addition to other funds.

The following is a list of its top seven buys (by market value) in the last quarter, as released in its most recent 13F filing with the SEC.



Shares Held - 12/31/2010

Shares Held - 03/31/2011

The Dow Chemical Company




The Kroger Co




Qualcomm Incorporated




Lowe's Companies Inc




Citigroup Inc




WellPoint Inc




MetLife Inc




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Here is my take on these stocks:

Dow Chemical is the largest chemical company ranked by sales in the US and among the top five globally. Dow is the leading global producer of commodity plastics and chemicals such as polyethylene, ethylene glycol, and caustic soda, as well as a leading producer of differentiated chemicals and plastics for industrial, construction, automotive, and agricultural end markets.

My take: Buy. Last month, Dow reported its first quarter of 2011 results. The company earned $0.82 per share in the first quarter of 2011, ahead of last year’s $0.43 per share. Quarterly revenues jumped 20% year over year to $14.7 billion. Volume and pricing gains across all business segments and geographical regions yielded healthy revenue growth. Dow anticipates demand to improve further, especially in Asia, due to the global economic recovery. Moreover, the US and European markets have also started showing signs of improvement. Dow expects $35 billion in cash flow through 2015.

Kroger, headquartered in Cincinnati, is one of the nation's largest grocery retailers. The company currently operates 2,449 supermarkets and multi-department stores in 31 states under approximately 24 local banners. Its store formats include grocery and multi-department stores, convenience stores and mall jewelry stores. Some of its brands are Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry's, King Soopers, QFC, Ralphs and Smith's.

My take: Buy. Kroger’s strategy of focusing on customers and cutting gross margin to drive sales shined through. The company on June 16 reported total sales, including fuel, increased 11.0% to $27.5 billion in the first quarter of fiscal 2011 compared with $24.7 billion for the same period last year. In the first quarter, which ended May 21, total sales, excluding fuel, increased 4.8% over the same period last year.

Identical supermarket sales, without fuel, increased 4.6% in the first quarter over the same period last year. This marks 30 consecutive quarters of identical supermarket sales increases for Kroger. Net earnings for the first quarter totaled $432.3 million, or $0.70 per diluted share. Net earnings in the same period last year were $373.7 million, or $0.58 per diluted share. Kroger updated its same store supermarket sales and earnings guidance for fiscal 2011. The company now expects same store supermarket sales growth, excluding fuel, of 3.5% to 4.5% for the year. The previous guidance range was 3% to 4%.

For the full year, Kroger increased its earnings guidance to $1.85 to $1.95 per diluted share. Based on the current operating environment, the company expects to achieve results near the top end of this range. The increase reflects the strength of the company’s first quarter results and the higher estimated LIFO charge. The original guidance was $1.80 to $1.92 per diluted share. While management suggested that consumers are beginning to feel the effects of inflation, it reiterated that the competitive environment remains rational and believes it can continue to pass through higher product costs while continuing to profitably gain share throughout the year.

Qualcomm is a leading developer and innovator of advanced wireless technologies, products and services. Qualcomm is a world leader in 3G and next-generation mobile technologies.

My take: Buy. In the second quarter earnings (April 20), the company reported that revenues were up $3.88 billion , a 46% increase year on year. Operating income increased by 38% year on year to $1.07 billion. Net income rose by 29% year over year to $999 million. As a sign of continuing strength, full year guidance for GAAP revenues was raised to a range of $14.1-14.7 billion from $13.6-14.2 billion and diluted EPS to a range of $2.51-2.59 from $2.32-2.46 on the back of strong demand.

CDMA-based MSM shipments continue to grow with 118 million shipments in the March quarter up 27% from a year ago. CDMA-based reported device sales jumped to $40 billion in the December quarter with estimates of $35.5-38.5 billion for the March quarter. The numbers are down sequentially but up from $25.5 billion in the March quarter a year ago. Market share on Android-based (NASDAQ:GOOG) smart phones is more than 50% and Qualcomm chips will be featured in the forthcoming Nokia-Windows smart phones along with the new line of HTC smart phones. Qualcomm is working to enable developers to build applications across a range of operating systems (Android, BlackBerry (RIMM), HP (NYSE:HPQ) webOS, Windows (NASDAQ:MSFT)) for the benefit of both its wireless ecosystem partners and QCOM (chipset & licensing for CDMA based devices).

Lowe's Companies, Inc. is the second-largest home improvement retailer in the world with about 1,700 stores in the U.S. and Canada.

My take: Underperform. In its first quarter results, Lowe’s reported net earnings of $461 million for the quarter ended April 29, a 5.7 percent decrease from the same period a year ago. Sales for the quarter decreased 1.6 percent to $12.2 billion from $12.4 billion in the first quarter of 2010. Comparable store sales for the first quarter decreased 3.3 percent. The company expects second quarter results to be better on the back of better weather conditions. Given the high probability of significant headwinds in the second quarter, owing to a soft housing market recovery, high gas prices, and stronger competition from Home Depot (NYSE:HD), it will be tough for Lowe’s to meet its target.

Citigroup is a global diversified financial services holding company. Citigroup businesses provide consumers, corporations, governments and institutions with a range of financial products and services.

My take: Buy. Citigroup is a significantly undervalued financial company from every perspective. It is trading at a discount to its Tangible Book Value and has a forward PE of just 7x. Further, it has a strong emerging market presence and over 60% of its core business coming from foreign markets. Going forward, its earnings are likely to continue benefiting from improving credit trends, partly offset by seasonally lower trading revenues over the next two quarters. Its operating leverage is also expected to improve in the back half of 2011, as a ramp up in investments in Asia and Latin America begin to generate revenue. Attractive valuation, strong capital levels and potential for faster growth from emerging markets makes it a good buy.

Well Point is the largest health benefits company in the U.S in terms of medical enrollment, with 34 million members in its affiliated health plans, and a total of more than 70 million individuals served through all subsidiaries.

My take: Buy. In its first quarter 2011 earnings, WellPoint reported that net income was $926.6 million, or $2.44 per share, including net investment gains of $35.6 million after-tax, or $0.09 per share. Net income in the first quarter of 2010 was $876.8 million, or $1.96 per share, including net investment gains of $18.6 million after-tax, or $0.04 per share. Medical enrollment grew by 875,000 members, a 2.6% growth from year end 2010.

WLP is acquiring Care More Health Group, which will expand its presence in the US government program for the elderly. The acquisition is expected to close by the end of 2011.The company expects that more than 1 million baby boomers will become eligible for the program between now and 2030, in the 14 states where it operates its Blue Cross and Blue Shield plans.

MetLife is the leading provider in the U.S. of individual and group life insurance, retirement savings products, dental, disability and group auto & home insurance.

My take: Buy. The company possesses the strongest long-term growth potential of any U.S. life insurer owing to its leading market positions, household brand-name awareness and solid financial strength. With the announced acquisition of ALICO (AIG's foreign life subsidiary), international markets will become the company's biggest business.

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