Seeking Alpha
Profile| Send Message|
( followers)  

PNC Financial Services Group (PNC) manages $43 billion in equity assets primarily through its investment advisory subsidiary PNC Wealth Management, which controls the PNC Series of mutual funds.

Investment Strategy: PNC employs both growth and value approach to investing. The firm primarily invests in small- to large-cap companies utilizing a combination of fundamental and quantitative analysis. The firm utilizes a top-down approach in allocating assets and a bottom-up strategy in selecting stocks. PNC holds stock for the long term and has a very low turnover of 15.20% annually.

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

Stock

Symbol

Shares Held - 03/31/2011

Shares Held - 06/30/2011

Covidien Plc

(COV)

0

1348843

Macy's, Inc.

(M)

89864

1910584

Estee Lauder Companies Inc.

(EL)

102063

539810

Baker Hughes Incorporated

(BHI)

86107

711182

Walt Disney Co.

(DIS)

2357858

3377569

CSX Corp.

(CSX)

758169

2245316

Johnson & Johnson

(JNJ)

8905225

9338398

Brown-Forman Corporation

(BF.A)

4718996

5243729

My favorite among the above stocks is Covidien Plc. Covidien is a healthcare conglomerate that operates in four segments: Medical Devices, Imaging, Pharmaceuticals, and Medical Supplies. Following are my key investment arguments for the stock.

  • Accelerating Organic Revenue Growth: In its recent earnings release Covidien reported organic, constant currency top line growth in Q3 in the 4-5% range up from 3.5% last quarter and 1- 2% growth in the preceding quarters. Revenues from the vascular business more than doubled YoY to $368 mn buoyed by eV3 acquisition. The company benefited from several successful new product launches and from market share gains, and this trend is likely to continue going forward.
  • Beatable consensus numbers: Current consensus estimates for Q4 EPS and FY2012 are $1.04 and $4.28 respectively – both of which are too low. COV reported $1.01 EPS for Q3 and it has 12% more selling days in Q4 implying even without assuming any QoQ acceleration it can beat the consensus EPS estimate. Similarly for 2012, buyback activity alone could drive 10% EPS growth implying $4.28 consensus EPS estimate is low.
  • Low Multiple: Covidien is currently trading at a discount to broader medtech space while it should actually trade at a premium given the upcoming product launches and accelerating business momentum. Yesterday, Goldman released a research note mentioning medical-supplies companies like drug-infusion pump maker Baxter International Inc. (BAX) and hospital product maker Covidien PLC are more attractive stocks than medical-device makers because of their stable unit growth and lower exposure to price cuts.

The stock is likely to rise going forward and its FY2012 guidance on September 8 (analyst day) is likely to serve as a major catalyst.

For other stocks in the above list, here are some of the specifics about these companies, including a brief description of their business, growth expectations (topline and bottomline):

  • Macy’s, Inc. is a retail organization operating retail stores and internet websites under two brands (Macy’s and Bloomingdale’s) that sell a range of merchandise, including men’s, women’s and children’s apparel and accessories, cosmetics, home furnishings and other consumer goods in 45 states, the District of Columbia, Guam and Puerto Rico. Macy’s EPS forecast for the current year is $2.58 and next year is $2.93. According to consensus estimates, its top line is expected to grow 4.80% in the current year and 2.90% next year.
  • The Estee Lauder Companies Inc. is a manufacturer and marketer of skin care, makeup, fragrance and hair care products. Estee Lauder’s EPS forecast for the current year is $3.67 and next year is $4.37. According to consensus estimates, its top line is expected to grow 12.40% in the current year and 7.40% next year.
  • Baker Hughes Incorporated is engaged in the oilfield services industry. Baker Hughes is a supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. The Company also provides industrial and other products and services to the downstream refining, and process and pipeline industries. Baker Hughes’ EPS forecast for the current year is $4.33 and next year is $5.94. According to consensus estimates, its top line is expected to grow 36.90% in the current year and 16.50% next year.
  • The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company. The Company operates in five segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive Media. Walt Disney’s EPS forecast for the current year is $2.56 and next year is $2.99. According to consensus estimates, its top line is expected to grow 7.80% in the current year and 6.40% next year.
  • CSX Corporation is a transportation supplier. The Company provides rail-based transportation services, including rail service and the transport of intermodal containers and trailers. CSX’s EPS forecast for the current year is $1.75 and next year is $2.05. According to consensus estimates, its top line is expected to grow 12.20% in the current year and 7.70% next year.
  • Johnson & Johnson is a holding company. The Company and its subsidiaries are engaged in the research and development, manufacture and sale of a range of products in the health care field. It has more than 250 operating companies conducting business worldwide. The Company’s operating companies are organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. Johnson & Johnson’s EPS forecast for the current year is $4.97 and next year is $5.29. According to consensus estimates, its top line is expected to grow 6.20% in the current year and 4.80% next year.
  • Brown-Forman Corporation, manufactures, bottles, imports, exports and markets a variety of alcoholic beverage brands. Brown-Forman’s EPS forecast for the current year is $3.69 and next year is $4.07. According to consensus estimates, its top line is expected to decline 6.80% in the current year and grow 5.30% next year.
Source: The Top Stocks PNC Financial Services Is Buying