Analyzing Wellington Management's Top Buys

Includes: BP, CHK, JPM, NVDA, PBR
by: Rash Menaria

Wellington Management Company, LLP is an investment advisory and hedge fund firm managing over $300bn in equity assets. The firm manages Hartford series of funds in addition to other funds. The following is a list of its top 10 buys 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

Chesapeake Energy Corporation




Petroleo Brasileiro SA




JPMorgan Chase & Co




NVIDIA Corporation








Agilent Technologies Inc




Imperial Oil Ltd




Canadian Natural Resources Limited




Citrix Systems Inc




Avago Technologies Limited




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Here is my take on Wellington's top five buys by market value:

Chesapeake Energy Corporation is the second-largest producer of natural gas, a top 15 producer of oil and natural gas liquids and the most active driller of new wells in the U.S. It is headquartered in Oklahoma City.

My Take: Neutral

CHK ended the first quarter with $9.9 billion of debt with a debt-to-capitalization ratio of 39.8% (versus 45% in the preceding quarter). Cash flow from operations in the first quarter increased 11% year over year to $1,404 million. CHK intends to reduce its long-term debt (by monetizing its assets and reducing lease-hold spending) by 25% over the course of 2011–2012, at the same time, it remains proactive on increasing its natural gas and oil production by the same percentage.

Chesapeake’s focus on shale gas plays should provide the impetus to monetize its assets more effectively and efficiently, thereby boosting returns. Given its industry leading growth profile, competitive cost structure, Chesapeake has a competitive advantage in the E&P space over the peers like EOG Resources Inc. (NYSE:EOG) and Devon Energy (NYSE:DVN).

With natural gas accounting for about 87% of Chesapeake’s production in the quarter and near-term speculations of challenging natural gas fundamentals, the company’s results may be vulnerable to fluctuations in the relevant markets.

Petroleo Brasileiro S.A. primarily engages in oil and natural gas exploration and production, refining, trade, and transportation businesses. The companys Exploration and Production segment is involved in the exploration, production, development, and production of oil, liquefied natural gas (LNG), and natural gas in Brazil. Petroleo Brasileiro was founded in 1953 and is based in Rio de Janeiro, Brazil.

My Take: Neutral

Petroleo Brasileiro reported strong 1Q11 results with the actual EPS ($0.99) being well ahead of the Street’s consensus of $0.87. This upside was driven primarily by higher production and robust oil prices. However, the firm’s April production numbers were relatively lower. Owing to the ongoing platform maintenance in the Campos basin, the domestic oil production for April was down ~1.4% MoM to 2.003 mnbpd. Also, the international segment’s gas output declined 6% YoY in April. Although, the production situation is likely to improve in 2H, the forecasts for the present quarter remain weak. Therefore, I maintain a neutral view for short term.

JPMorgan Chase & Co. is a leading global financial services firm with assets of $2.1 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity.

My Take: Buy

JPM reported first-quarter 2011 net income of $5.6 billion, compared with net income of $3.3 billion in the first quarter of 2010. Earnings per share were $1.28, compared with $0.74 in the first quarter of 2010.

Jamie Dimon, Chairman and Chief Executive Officer, commented on the quarter: “The Firm’s results reflected a strong quarter across the Investment Bank and solid performance from Card Services, Commercial Banking, Treasury & Securities Services, and Asset Management.”

Going forward, JPMorgan's fortunes may be looking up due to the ongoing growth in commercial and industrial loans. In May, commercial and industrial loans rose to $1,263.9 billion from $1,213.6 billion in November, up 4.1%. This growth has continued into June. The measure of commercial and industrial loans at reporting large commercial banks rose in 3 of the past 4 weeks. And, at $649.4 billion, the measure is up 1.7% month-over-month.

NVIDIA Corporation: designs, develops, and markets three dimensional (3D) graphics processors and related software. The Company’s products provide interactive 3D graphics to the mainstream personal computer market.

My Take: BUY

Nvidia reported revenue of $962.0 million for the first quarter of fiscal 2012 ended May 1, 2011, up 8.5 percent from the prior quarter, and down 4.0 percent from $1.0 billion from the same period a year earlier. GAAP gross margin was 50.4 percent, a third consecutive record, compared with 48.1 percent in the previous quarter and 45.6 percent in the same period a year earlier. Excluding the Icera acquisition, the outlook for the second quarter of fiscal 2012 Revenue is expected to be up 4 to 6 percent from the first quarter and GAAP gross margin is expected to be 50.5 to 51.5 percent.

With the acquisition of Icera, a leading innovator of top-performing wireless modems for 3G and 4G cellular phones and tablets, NVIDIA now offers the two main processors used in smartphones -- the applications processor, in the form of the NVIDIA(NYSE:R)Tegra(R) super chip, and the baseband processor, based on Icera technology. The combined offerings will help OEM customers improve their time to market and deliver the requirements of next-generation mobile computing. With the growth in demand for smartphones and tablets Nividia’s outlook is promising.

BP plc is one of the world's largest energy companies and is involved in exploration and production, gas, power and renewables, refining and marketing, and petrochemicals. BP has over 18 bboe of proved reserve, 3.8 mmboed of production, and 24 refineries with 2.3 mmbd capacity.

My Take: Buy

The Gulf of Mexico disaster, the Macondo oil well blow out is shifting in BP’s favor. Some of the companies involved in the disaster are settling claims with BP. Mitsui has agreed to pay BP $1.065 billion. Thus, indicating that Mitsui agrees with BP that the Macondo disaster was the result of oversights and mistakes by multiple parties. Further, Weatherford International Ltd. (NYSE:WFT) agreed to pay $75 million to settle claims related to the Macondo well blowout and oil spill in the Gulf of Mexico. With these settlements it is expected that the Halliburton (NYSE:HAL), Transocean (NYSE:RIG) and Anadarko Petroleum (NYSE:APC) will follow suit. The settlements will ease the economic costs of BP that occurred from the explosion.

Even though the deal with Rosneft is dead, BP has enough energy projects to see it through. It is expected to resume drilling in the Gulf of Mexico in the next six to twelve months.

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