An Analysis of AllianceBernstein's Top 5 Stocks to Sell

Includes: CF, F, HSH, PH, SWY
by: Rash Menaria

AllianceBernstein L.P. is an investment advisory and hedge fund firm managing ~$150 bn in equity assets. The firm manages AllianceBernsteins' series of mutual funds, in addition to other funds and caters to individuals and institutions. The following is a list of its top 15 sells 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

Safeway Inc




CF Industries Holdings Inc




Sara Lee Corp




Ford Motor Co




Parker Hannifin Corporation




Microsoft Corporation




Wells Fargo & Company




Schlumberger Limited




Kohl's Corp




Cisco Systems Inc




JPMorgan Chase & Co




Deere & Company




Vodafone Group Plc




CME Group Inc




Fifth Third Bancorp




Here is my take on its top five sells by market value:

Safeway Inc. (NYSE:SWY) is one of the largest food and drug retailers in North America. As of March 26, 2011, the company operated 1,692 stores in the Western, Southwestern, Rocky Mountain, midwestern and Mid-Atlantic regions of the United States and in Western Canada. In support of its stores, Safeway has an extensive network of distribution, manufacturing and food processing facilities. Safeway also holds a 49% interest in Casa Ley, S.A. de C.V., which operates 169 food and general merchandise stores in Western Mexico.

My Take: Hold

Last Quarter, the company reported sales of $9.8 billion versus a year-ago quarter’s $9.3 billion. The effect of a higher Canadian exchange rate and higher fuel sales, with a 0.4% increase in same-store sales (excluding fuel) were partially offset by several store closures. Safeway had been witnessing sluggish revenue growth over the past few quarters. The situation is gradually improving, which is reflected in the surge in same store sales, the best among the past eight quarters. The company is expanding its international business especially in Canada, Australia and UK. This resulted in improvement in pricing and volume.

In order to improve its bottom line in a recessionary environment, Safeway has undertaken cost reduction initiatives. The company is building its distribution network in the US, thereby reducing the number of retailers in the market. Moreover, the company has closed its distribution centers in British Columbia and Vancouver, which is expected to lower operating expenses throughout 2011.

Safeway continues to face challenges in the form of price competition, as economic uncertainty and unemployment rates are forcing many consumers to settle for cheaper substitutes, or cut back on spending altogether.

CF Industries (NYSE:CF) is a global leader in fertilizer manufacturing and distribution, the second largest nitrogen fertilizer producer in the world, and the third largest phosphate fertilizer producer among public companies. The company is headquartered in Deerfield, IL, a suburb of Chicago. CF Industries produces nitrogen products including: Urea Ammonium Nitrate (UAN), Anhydrous Ammonia, Granular Urea, and Ammonium Nitrate. In addition, CF Industries produces primary phosphate fertilizers including Diammonium Phosphate (DAP), and Monoammonium Phosphate (MAP).

My Take: Buy

The Fertilizer Institute (TFI) reported, a couple of weeks back, that domestic producer inventories for phosphates and potash fell in May and remain tight by historical standards. Global potash prices continue to firm as the market awaits the China and India potash contract settlements. Global potash producers and India remain in a stalemate as they continue to negotiate a pricing contract for 2011 - with India willing to pay $420-$450/mt, while producers are looking for $480/mt. While discussions are ongoing, producers continue to place more products in Brazil and Southeast Asia where prices have risen to $525/mt and $510/mt respectively, with additional price increases on the horizon.

Nitrogen is looking stronger on robust demand and expectations of sharply lower supply from China on higher costs and strict implementation of export tax policies. Less supply from China is likely to be sustained as long as energy is in scarce supply and should ease the impact of the next two years capacity expansions elsewhere, keeping N-markets balanced for longer.

One constant factor in human life is the need for food to survive. Fertilizer companies provide the nutrients to enhance crop production output. Increasing demand for food, and a tightening of the basic materials for food production puts CF Industries in a very advantageous position.

Sara Lee Corporation (NYSE:SLE) is a global manufacturer and marketer of high-quality, brand-name products for consumers throughout the world focused primarily on the meats, bakery, beverage and household products categories.

My Take: Hold

Sara Lee Corp will spin-off its international coffee and tea business instead of its North American meats business, as it had planned. The company also said it believes the planned sale of its North American bakery business to Mexico's Grupo Bimbo will close early in fiscal 2012. With the split and the sell-off of its bakery business, Sara Lee has a lot on its plate.

On the risk side, the European coffee business remains intensely competitive with private label competition particularly fierce in the Netherlands and Belgium. The consumer packaged goods producer is facing higher input costs, a price-sensitive consumer, and a transformative split of the company.

A recent report by Bloomberg indicated Sara Lee to be a takeover target. However, the stock showed only a modest stock price reaction to the news indicating there may not be much upside from here.

Ford Motor Company (NYSE:F) primarily develops, manufactures, distributes, and services vehicles and parts worldwide. It operates in two sectors; Automotive and Financial Services.

My Take: Buy

Ford reported in its first quarter report for 2011 a net income of $2.6 billion, more than $466 million a year ago. The company increased its share in the Asia Pacific Africa auto market to 2.4%, fueled by Fiesta, Focus, Figo, and Ranger; China sales increased 18%, India up 115%.

On June 7th in its mid-decade outlook, Ford stated it expected worldwide sales to increase by approximately 50 percent, to about 8 million vehicles a year – with improved operating margins. This was expected as the company continues its One Ford plan to accelerate product introductions and expand quickly in growth markets.

The company plans to pay down $3.1 B of debt, and to target $10 B in debt by the middle of the decade for its automotive arm. This is rather high, as Ford did not take any TARP funding and it has demonstrated a good faith effort to pay down its debt.

Ford reported a profit in all global automotive regions in the first three months of 2011, and North American operations reported a pre-tax profit of $1.8 billion, including the highest margin performance since the comparable 1988 period. Ford’s new product mantra;f restructuring improvements and competitive cost structure of its global platforms, will enable near-record margin performance over the next few years.

Parker Hannifin (NYSE:PH) is the world's leading diversified manufacturer of motion and control technologies and systems, providing precision-engineered solutions for a wide variety of commercial, mobile, industrial and aerospace markets.

My Take: Buy

In its FY 2011 third quarter report, PH reported that sales increased 24% from the same period last fiscal year, and margins improved to 14.8%, from 11.8% year on year.

At a recent Deutsche Bank global Industrials conference, PH reiterated its 10% p.a. revenue growth target, with ~5% from organic growth. Management highlighted that product pipeline remains robust, with ~$2.4bn incremental sales potential. The highlighted 5 products that are either in late development stage, or production phase that are expected to tally ~$1bn incremental revenues over the next 5 years.

Parker Hannifin expects revenues from Asia to reach $1.6bn in FY 11 and to further expand to $3bn in FY 14. Localization is another focus here with plans to raise local content to 70-75%, up from 50% today.

Parker Hannifin increased its 2011 earnings per share from continuing operations guidance, from $5.80 to $6.20, to a range of $6.20 to $6.40. The company continues to benefit from recovering economic conditions. The company is witnessing a recovery in aerospace demand, which positively favors its future growth.

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