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Harris Associates L.P. is a Chicago-based investment company that manages over $50 billion in assets. The company is a value investor focussing on free cash flow and management quality. Following is a list of its top 10 holdings according to its latest 13F filing.

Stock

Symbol

Shares Held 06/30/2011

Market Value 06/30/2011

% of Portfolio

Intel Corporation

INTC

55487643

1229606160

3.33

Cenovus Energy Inc.

CVE

29653494

1116750580

3.02

Texas Instruments Inc.

TXN

31384052

1030338485

2.79

Apache Corp.

APA

8101179

999604472

2.7

Mastercard Incorporated

MA

2714736

818058536

2.21

Laboratory Corp. of America Holdings

LH

8013255

775602959

2.1

Applied Materials Inc.

AMAT

59179407

769924099

2.08

Tyco Electronics, Ltd.

TEL

20908694

768603556

2.08

Nestle

OTCPK:NSRGY

11867087

740268900

2

Diageo Plc

DEO

9030805

739352030

2

Here are some of the specifics about these companies including my recommendations for them:

Intel Corporation, founded in 1962 and based in Santa Clara, California, is the world’s largest semi conductor industry, supplying the computing and communications industries with chips, boards, systems, and software building blocks that are integral to computers, servers and networking, and communications products.

Recommendation: Buy

Intel’s “Visibly Smart” 2nd Generation processors are showing significant strength, and with the absence of competitors, providing Intel with a pricing power on the product. The steady enterprise demand and Intel’s own strong product marketing campaigns are expected to increase its client and server revenues sequentially. The Ultrabook initiative is expected to provide important incremental demand, both for consumers and enterprises. For the smartphones segment, Intel’s low power Medfield chip system-on-a-chip, designed to specifically cater for this market, will make it competitive with processors produced on ARM core. Intel has also significantly improved its cost structure over the past 5 years, while still retaining leadership in transistor technology. According to consensus estimates, price target for Intel is $25.57.

Cenovus Energy, headquartered in Calgary, Canada, engages in the development, production, and marketing of bitumen, crude oil, natural gas, and natural gas liquids (NGLs) in Canada with refining operations in the United States.

Recommendation: Hold

Cenvous is continuing its focus on its oil sands portfolio in Foster Ck, Christina Ck, Narrows Ck, Grand Rapids and other oil sands assets. Its traditional (hedged) production provides it with significant amounts of free cash flow to be able to invest in its development of oil sand assets. Refining is expected to add to the free cash flow, once the CORE production line is expanded. Its operating costs are one of the lowest in the industry, with low oil-steam rations, which further reduces the requirements of capex. It achieves these low costs via module assembly in the Nisku yard and reservoirs requiring less steam. Due to lower costs, its projects break even at much lesser than the industry standards, providing superior returns to its shareholders. It also has a significant resource base for its oil sands portfolio, i.e., expected to increase with each season of stratigraphic drilling. The company intends to grow its oil portfolio by over 20% CAGR, where significant part of the growth will come from 2015-2020.

However, Cenvous current valuation at ~7.5x 2012 cash flow is pricing in most of the positives. We recommend a ‘Hold’ for now, but with a constant eye on the progress of the Oil Sands portfolio of the company.

Texas Instruments, founded in 1930, is the third largest semiconductor supplier globally. It today commands product share leadership in the digital signal processor, analog and digital imaging markets.

Recommendation: Buy

Texas instrument is seeing lower demand from its largest wireless customer Nokia, which is expected to hit both sales as well as have inventory build ups. Outside Nokia, demands are seeing traction. Analog and Embedded processing businesses are expected to see higher revenues. Industrial markets continue to remain strong. Communication Infrastructure, e-metering, e-reader, and tablets also are on an uptrend. Geographically, while the US market is expected to grow, Asia and Europe are seeing a no growth phase currently. Japan is in a de-growth phase due to the earthquake that the country recently saw, and will take more time to recover. On the production front however, the recovery of the Japan production facility is on track with the facility being relocated to another site. Progress also continues on the planned acquisition of National Semiconductor, which is expected to close by FY11.

Apache Corp. (NYSE:APA), together with its subsidiaries, engages in the exploration, development, and production of natural gas, crude oil, and natural gas liquids. As of December 31, 2009, it had total estimated proved reserves of 1,067 million barrels of crude oil, condensate, and natural gas liquids, as well as 7.8 trillion cubic feet of natural gas. The company was founded in 1954 and is based in Houston, Texas.

Recommendation: Buy

Apache has repeatedly exhibited its ability to increase efficiency and productivity from assets it buys, even from its competitors. It has achieved a record rate from a new well in the Forties Field of the UK North Sea. This is an asset it had bought off BP in 2003. There is high expectancy from the BP assets in North America and Egypt bought by Apache last year, with Egypt already having tasted initial success. There have been five new discoveries in Egypt and a development well, all achieving significant pay. APS is focussing on expanding Egypt both vertically and horizontally. A major part of the $640mn in 2011 capex has been earmarked for the Permian, where assets were bought from both BP and Mariner. Apache has also had the highest production growth (comparative) of the large cap in the current year. According to consensus estimates, EPS is expected to be $12.15 in the current year and $13.34 in FY12.

MasterCard (NYSE:MA) is a leading global payments solutions company that supports the credit and debit programs of approx. 25000 financial institutions and 210 countries.

Recommendation: Buy

MasterCard continues to benefit from the global growth of electronic payments. MasterCard also recently extended its MoU with China Union Pay, whereby MasterCard, with its MIGS on Line payment gateway, will enable CUP issues cards for use with e-commerce merchants outside Mainland China. MasterCard also enjoys a strong financial position holding $3.9bn in case and no debt. In addition, the release by Fed of its final interpretation of the Durbin registration, specifically on the PIN and signature debit card interchange fees, has been favourable to the industry per se. Faster contribution of alternate payment channels like prepaid and mobile will be prove to be a tailwind for the company. It is also tying up with Google to offer an NFC based mobile payment solution at 124,000 retailers equipped with the MasterCard PayPass product in the US.

Continue to Part 2 >>

Source: Analyzing Top Q2 Holdings of Harris Associates LP (Part 1)