Seeking Alpha
Profile| Send Message|
( followers)  

The Vanguard Group is one of the largest institutional investors in the equity market. The company offers several mutual funds, exchange-traded funds, retirement services and other financial products to its customers. Vanguard is also one of the leaders in financial innovation.

Its founder, and former chairman, John C. Bogle is accredited with the creation of the first retail index fund. Vanguard's mutual fund structure has a different structure than that of JP Morgan (NYSE:JPM), Citibank (NYSE:C), and Morgan Stanley (NYSE:MS). They are owned by clients. The funds share the same costs pool among each other, effectively reducing the marketing and management costs.

As of Q2 2011, Vanguard had a diversified portfolio of equities. Services constitute 21.47% of the holdings, followed by technology (16.83%) and financial stocks (14.40%). Energy companies constitute 10.69% of the portfolio. According to Edgar Online, Vanguard increased its ownership of 2806 stocks, while opening 74 new positions in the last quarter. I have examined the boldest 7 stock buys from a fundamental perspective, adding my O-Metrix Grading System where possible:

Company Name

Ticker

Shares Held

% Change

% of TSO*

O-Metrix Score

American International Group

AIG

16.70 million

340.7%

0.88%

8.8

Apple

AAPL

35.55 million

2.28%

3.83%

7.84

LyondellBasell Industries

LYB

7.39 million

1943%

1.29%

7.79

Mosaic

MOS

7.18 million

70.21%

2.60%

4.08

General Motors

GM

17.84 million

96.05%

1.19%

13.49

Blackrock Inc

BLK

3.45 million

52.31%

2.56%

9.35

Chevron

CVX

81.63 million

2.31%

4.08%

5.20

*TSO: Total share ownership by the Vanguard funds. Data obtained from Finviz/Morningstar and is current as of August 24.

American International Group stock has been in a free-fall state for a while. The stock lost more than half of its value since the beginning of this year. Vanguard is the third largest shareholder of AIG after Fairholme Capital, and Franklin Resources. Vanguard owns 16.7 million shares and increased its holdings by 340.7% in the last quarter. Total share ownership stands at 0.88%.

The stock is trading with a low trailing P/E ratio of 2.9 (due to asset sales), and a forward P/E ratio of 7.7. Analysts have a mean target price of $30.85, implying 35% upside potential. While the company lost its premium status as a global insurance titan, it still has significant presence in the US market. If you believe that the recovery will continue, than AIG is your stock. Based on an annualized EPS growth estimate of 9.33%, AIG has a PEG ratio of 0.31 and an O-Metrix score of 8.8.

Apple recently lost its master magician, Steve Jobs. The board named COO Tim Cook as his successor. Nevertheless, Steve Jobs will remain as the chairman of the Apple. Steve Jobs organic growth and continuous innovation philosophy was the main driving force behind Apple’s success. Hopefully Tim Cook will continue with the same philosophy.

The stock returned 16.62% since January and 54.88% in a year. However, I still think that Apple is cheap. My FED+ fair value estimate range for Apple is $363 - $430 per share. The stock is trading with a trailing P/E ratio of 14.89 and a forward P/E ratio of 11.71. Based on annualized EPS growth estimate of 20.85%, it has a PEG ratio of 0.71 and an O-Metrix score of 7.84.

LyondellBasell Industries is a specialty chemical producer, headquartered in Netherlands. Vanguard owns 7.39 million shares and increased its holdings by 1943%. Total share ownership stands at 1.29%. While the stock lost 25.52% in the last quarter, it returned 55.74% in a year.

LyondellBasell has attractive ratios. It is priced with a low trailing P/E ratio of 6.51, and a forward P/E ratio of 6.30. Dividend yield is 1.3%. Analysts mean target price of $50.80 imply almost 60% upside potential. Based on an annualized EPS growth estimate of 8.67%, it has a PEG ratio of 0.75 and an O-Metrix score of 7.79.

Mosaic lost 6.5% in the last month and 11.49% since January. Vanguard owns 7.18 million shares and increased its holdings by 70.21% in the last quarter. Total share ownership stands at 2.60%. Similar to LyondellBasell, Mosaic has attractive ratios. It is priced with a low trailing P/E ratio of 11.98, and a forward P/E ratio of 10.74. Dividend yield is 0.3%. Analysts mean target price of $83.32 imply 26% upside potential. Based on an annualized EPS growth estimate of 9%, it has a PEG ratio of 1.33 and an O-Metrix score of 4.08.

General Motors is in a strong recovery since its emergence from bankruptcy. Vanguard owns 17.84 million shares and increased its holdings by 96.05% in the last quarter. Total share ownership stands at 1.19%. While the company is doing well, the stock has been heading south for a while. GM shares lost almost 39% since January. Unlike financial stocks, GM’s balance sheet does not have significant red flags.

Its current ratio of 1.23 and debt-to-equity ratio of 0.29 are much better than financial stocks. As of Aug 24th, the stock is trading with a low P/E ratio of 3.8, and a forward P/E ratio of 4.71. Analysts' estimate an EPS growth of 11.6% for the next 5 years. Based on these estimations GM has a PEG value of 0.42 and an O-Metrix score of 13.49.

Blackrock lost 11.22% in the last month and 15.63% in the last quarter. Vanguard owns 3.45 million shares and increased its holdings by 52% in the last quarter. Blackrock has a high Beta of 1.55. Gross margin is 52.80% and profit margin is 26.25%. It has a low trailing P/E ratio of 13.34 and a forward P/E ratio of 11.25.

Analysts estimate 19.62% EPS growth in the next 5 years, which is conservative given the 24.71% EPS growth in the past 5 years. Analysts have a mean target price of $223, implying almost 38% upside potential. Blackrock has a PEG ratio of 0.68 and an O-Metrix score of 9.35.

Chevron returned -8.56% in the last month and -4.73% in the last quarter. Vanguard owns 81.63 million shares and increased its holdings by 2.3% in the last quarter. Total share ownership stands at 4.08%. Chevron has a 4-star rating from Morningstar. Wall Street has diversified opinion on Chevron's future. Average five-year annualized growth forecast is 5%.

It has plenty of current assets in the balance sheet with almost no debt issues. Current ratio is 1.53 and debt/equity ratio is 0.1. The stock is trading at 1.69 times its book value. Trailing P/E ratio is 8.52, whereas the forward P/E ratio is 7.35. Analysts’ mean target price of $117.45 implies 20% upside potential. Chevron has a nifty yield of 3.2%. It has an O-Metrix score of 5.20.

Find more information on O-Metrix Grading System here.

Source: 7 Bold Buys By Vanguard