Top Q2 Sells of Aberdeen Asset Management

by: Rash Menaria
Aberdeen Asset Management PLC is an investment advisory and hedge fund firm managing over $55 bn in equities. It employs a bottom-up, fundamental approach, investing in established companies that are attractively priced and have quality management teams and solid business models. The firm maintains a long term focus in employing buy and hold strategies.
Following is a list of its top seven sells from its latest 13F filing.
Shares Held - 03/31/2011
Shares Held - 06/30/2011
Change in shares
Solera Holdings Inc.
Hill-Rom Holdings, Inc.
Bank of America Corporation
ICICI Bank Ltd.
The Home Depot, Inc.
Infosys Technologies Ltd.
St. Jude Medical Inc.
My favorite sells (which still have unfavorable risk reward) are Infosys and ICICI Bank. Both are Indian ADRs.
I have been bearish on the Indian IT space since March, when I wrote an article suggesting Accenture (ACN) will do better than Indian Offshoring Companies, citing the high PE of Indian offshoring companies and low PE of Accenture. Since then Accenture shares are up 14% and Infosys shares have declined 8%. I still have the same concern on Indian IT companies. I don’t see any reason why a U.S. investor should pay 21x multiple for Infosys’ ~15% EPS growth. With Global MNC setting their own captives in India, rising wages and increasing attrition the golden era for Indian offshoring companies seems to be behind us. (Click here and here to read some recent news articles). For Infosys in particular, the exit of its founder and chief mentor Mr. Narayanmurthy, increasing employee attrition as well as recent contract losses are negative. In its recent earnings call, management kept full year revenue growth outlook unchanged and provided cautious commentary on discretionary spending by clients. I believe there is a further scope for multiple contractions for Infosys’ stock.
I am not bullish on the Indian Banking space either. At 2x book value, shares of ICICI Bank doesn’t look cheap, particularly when you look at a deteriorating operating environment, lower NIMs, tepid credit growth and sluggish fee income. Inflation in India has persisted at elevated levels – 9.4% yoy for June 2011. The Reserve Bank of India is expected to continue with its tightening policy. The Indian real estate market, which was one of the major growth drivers for loans, is also peaking out due to funding pressure and lack of affordability. ICICI's commercial real estate exposure at 12% of loans increases delinquency risks. Credit Suisse recently downgraded ICICI Bank to neutral. I don’t see much upside for ICICI from current levels and risk reward is skewed downward given its high valuations.
For other stocks, here are some of the basics about their business including sell side consensus price targets for these companies:
Solera Holdings, Inc. is a provider of software and services to the automobile insurance claims processing industry. The company also provides products and services that complement its insurance claims processing software and services, including used vehicle validation and fraud detection software and services. It has a median sell-side price target of $62.50 compared to current market price of $59.41.
Hill-Rom Holdings, Inc. is a worldwide manufacturer and provider of medical technologies and related services for the healthcare industry, including patient support systems, safe mobility and handling solutions, non-invasive therapeutic products for a variety of acute and chronic medical conditions, medical equipment rentals and information technology solutions. It has a median sell-side price target of $49 compared to current market price of $46.64.
Bank of America is a bank holding company and a financial holding company. Bank of America is a financial institution, serving individual consumers, small and middle market businesses, corporations and governments with a range of banking, investing, asset management and other financial and risk management products and services. It has a median sell-side price target of $14 compared to current market price of $10.13.
The Home Depot, Inc. is a home improvement retailer. Home Depot stores sell an assortment of building materials, home improvement and lawn and garden products and provide a number of services. It has a median sell-side price target of $41.50 compared to current market price of $36.52.
St. Jude Medical develops, manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management, cardiology and cardiac surgery and atrial fibrillation therapy areas and neurostimulation medical devices for the management of chronic pain. It has a median sell-side price target of $57 compared to current market price of $49.42.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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