Inside Wellington Funds: Top 10 Holdings

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 |  Includes: CVX, IBM, JPM, MRK, ORCL, PFE, T, UNH, WFC, XOM
by: The Analyst Hub

Wellington Management Company, LLP is an investment advisory and hedge fund firm managing over $300 billion in equity assets. The firm manages Hartford series of funds in addition to other funds. WMC caters to individuals, institutions and pension and profit sharing plans, charitable organizations, banking and corporations.

Investment Strategy: Wellington Management employs various strategies covering domestic and international markets. The firm looks for attractive investments across different market cap and style spectrums. The investment process generally involves understanding global trends and outlooks for securities and sectors, and evaluating potential candidates on valuation, models, opinion and recommendations from different sources. The global value strategy focuses on financially sound companies that are out of favor, display potential for above average returns, and are selling at low P/E ratios.

The stock selection process combines fundamental research and valuation analysis from both quantitative and qualitative perspectives. Investments are primarily made in large-cap companies in developed markets, as well as in global companies located in emerging markets. Wellington Management Company also applies capital markets, currency, macroeconomic and technical analyses. The firm carries out proprietary research shared by various teams located globally.

The following is a list of Wellington’s top 10 holdings.

Stock

Symbol

Shares Held, 06/30/2011

% of Portfolio

Change in Shares

Exxon Mobil Corp.

(NYSE:XOM)

67706079

1.98

-1851012

Wells Fargo & Company

(NYSE:WFC)

155386942

1.57

2935305

Chevron Corp.

(NYSE:CVX)

39394350

1.46

-174483

Merck & Co. Inc.

(NYSE:MRK)

112489651

1.43

12718864

Pfizer Inc.

(NYSE:PFE)

184422994

1.36

-67203832

JP Morgan Chase & Co.

(NYSE:JPM)

87656353

1.29

-1995127

International Business Machines

(NYSE:IBM)

18814375

1.16

-1957502

Unitedhealth Group, Inc.

(NYSE:UNH)

62115215

1.15

-15109975

AT&T, Inc.

(NYSE:T)

98548637

1.11

-129840

Oracle Corp.

(NASDAQ:ORCL)

88327149

1.04

2928408

Click to enlarge

Source: 13F filing

My favorite among above stocks is Pfizer, which 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 will 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 the 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.

Here are some of the specifics about the other companies on the list.

Exxon Mobil Corporation is a manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a range of specialty products. It also has interests in electric power generation facilities. Exxon's EPS forecast for the current year is $8.61, and next year is $8.89. According to consensus estimates, its top line is expected to grow 23.20% in the current year and 6.30% next year.

Wells Fargo & Company is a diversified financial services company. The company provides banking, insurance, investments, mortgage banking, investment banking, retail banking, brokerage, and consumer finance through banking stores, the Internet and other distribution channels to consumers, businesses and institutions in 50 states, the District of Columbia, and in other countries. The company operates in three segments: Community Banking, Wholesale Banking, and Wealth, Brokerage and Retirement. Wells' EPS forecast for the current year is $2.81 and next year is $3.35. According to consensus estimates, its top line is expected to decline 4.60% in the current year and grow 1.10% next year.

Chevron Corporation and its subsidiaries are engaged in petroleum operations, chemicals operations, mining operations, power generation and energy services. Chevron's EPS forecast for the current year is $13.51 and next year is $13.28. According to consensus estimates, its top line is expected to grow 31.30% in the current year and 11.00% next year.

Merck & Co., Inc. is a global health care company. Merck delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products, which it markets through its joint ventures. Merck’s operates in four segments: the Pharmaceutical, Animal Health, Consumer Care and Alliances segments. Merck's EPS forecast for the current year is $3.73 and next year is $3.84. According to consensus estimates, its top line is expected to grow 3.70% in the current year and decline 1.70% next year.

JPMorgan Chase & Co. is a financial holding company. The bank and nonbank subsidiaries of JPMorgan Chase operate nationally, as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. The company's activities are organized into six business segments: Investment Bank, Retail Financial Services, Card Services, Commercial Banking, Treasury & Securities Services and Asset Management. JPMorgan's EPS forecast for the current year is $4.79 and next year is $5.36. According to consensus estimates, its top line is expected to decline 3.30% in the current year and grow 1.50% next year.

International Business Machines Corporation is an information technology company. It operates under five segments: Global Technology Services, Global Business Services, Software, Systems and Technology, and Global Financing. IBM's EPS forecast for the current year is $13.31 and next year is $14.76. According to consensus estimates, its top line is expected to grow 7.80% in the current year and 3.90% next year.

UnitedHealth Group Incorporated is a diversified health and well-being company. The company operates in four segments: Health Benefits, which includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement and UnitedHealthcare Community & State; OptumHealth; Ingenix, and Prescription Solutions. UnitedHealth's EPS forecast for the current year is $4.37 and next year is $4.77. According to consensus estimates, its top line is expected to grow 7.80% in the current year and 6.70% next year.

AT&T Inc. is a holding company. The company is a provider of telecommunications services in the United States and worldwide. These include wireless communications, local exchange services, long-distance services, data/broadband and Internet services, video services, managed networking, wholesale services and directory advertising and publishing. AT&T's EPS forecast for the current year is $2.38 and next year is $2.54. According to consensus estimates, its top line is expected to grow 1.50% in the current year and 1.20% next year.

Oracle Corporation is an enterprise software company. The company develops, manufactures, markets, distributes and services database and middleware software, applications software and hardware systems, consisting primarily of computer server and storage products. It operates in three segments: software, hardware systems and services. Oracle's EPS forecast for the current year is $2.40 and next year is $2.64. According to consensus estimates, its top line is expected to grow 8.60% in the current year and 7.70% next year.

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