A Look At BlackRock's Top 10 Holdings

 |  Includes: AAPL, CVX, GE, IBM, JNJ, JPM, MSFT, PFE, T, XOM
by: The Analyst Hub

BlackRock Financial Management, Inc. is an investment advisory and hedge fund firm founded by Robert S. Kapito. The firm is a subsidiary of BlackRock, Inc. It caters to high net-worth individuals, banking or thrift institutions, pension and profit sharing plans, charitable organizations and corporations and manages over $150 billion in assets.

Investment Strategy: BlackRock Financial Management combines quantitative screens and risk analysis with fundamental research. The firm reduces the universe of potential candidates through proprietary screens. Each specific style determines which factors are reviewed in the screens. The BlackRock large-cap series team identifies companies that are trading at reasonable valuations, as well as possess quality management, strong earnings growth rates, and the potential for excellent long-term performance relative to the benchmark. The firm employs fundamental analysis to verify or reject the results of the model by evaluating data accuracy, growth quality, as well as the sustainability or feasibility of growth rates. The bottom-up stock selection is used to guide sector weightings.

The following is a list of BlackRock's top 10 holdings:



Shares Held - 06/30/2011

% of Portfolio

Change in shares

Exxon Mobil Corp.





Apple Inc.





Chevron Corp.





Microsoft Corporation





General Electric Co.





International Business Machines





Pfizer Inc.





AT&T, Inc.





Johnson & Johnson





JP Morgan Chase & Co.





Click to enlarge

Source: 13F filing

My favourite long candidates among above stocks are Apple, Microsoft and Pfizer.

Apple is a secular growth and market share gain story in the smartphone and tablet space. Apple’s competitors in both smartphone and tablet space have, so far, been unable to counter Apple’s continued market share gain in both the segments. Recently Apple’s smartphone competitor Research in Motion (RIMM) declared its quarterly results. Its BlackBerry units plummeted 20% Q/Q while PlayBook shipments tanked 60%. I believe it is only a matter of time before the iPhone and iPad challenge RIMM's enterprise dominance. At 12x next year EPS and cash in hand of ~ $75 bn, it is one of the best stocks to buy in current uncertain times. The coming iPhone 5 launch will likely be the next catalyst for the stock.

Microsoft stock is another undervalued Tech story. Microsoft’s EPS forecast for the current year is $2.86 and next year is $3.13. According to consensus estimates, its top line is expected to grow 6.50% in the current year and 6.90% next year. At 8.6x next year EPS, I find Microsoft very attractive. At these levels, I don’t think the market is pricing in any of the positive initiatives the company is taking. Some of the important initiatives that can drive meaningful growth over the next one year are the Windows 8 launch, Office 365, which is gaining traction, and a successful launch of Nokia's (NOK) WP7 phones.

In addition, Microsoft’s excess cash position provides a downside cushion. Microsoft recently raised its dividend by 25% and it has significant potential to increase its dividend pay-out ratio further to supports the stock. I think Microsoft offers an attractive risk reward for investors who can hold the stock for the next couple of years.

Pfizer is another good long candidate among above list. Pfizer clearly stands out as the defensive play in the current uncertain environment. It offers an attractive mix of:

  1. Inexpensive valuation, with current year P/E of just 8x
  2. Multiple catalysts in the form of Phase III data or FDA approval for many late-stage drugs in second half of 2011.
  3. High FCF and dividend yield
  4. Limited earnings risk

Last month, the company won a case against Teva Pharmaceuticals (TEVA), which would prevent Teva from receiving approval for a generic form of Viagra until October 2019. Most of the sell-side analysts were assuming Viagra would lose exclusivity in 2012. The recent ruling can add 5-10 cents in incremental annual EPS for Pfizer till 2019.

More recently, the company received FDA’s approval for its drug Xalkori (crizotinib, 100% owned) for lung cancer with ALK rearrangements. Also, BMY (50-50 partner) reported strong Phase III Eliquis (apixaban) data in atrial fibrillation. Both are significant positives for the company, and each presents a $1 billion-plus potential opportunity.

Goldman Sachs' analyst recently raised his estimates for the company, noting that new products should help drive earnings growth.

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