Analyzing Top Buys Of Acadian Asset Management

 |  Includes: AAPL, ABEV, DFS, ERJ, MRK, PFE, TSU
by: The Analyst Hub

Founded in 1977, Acadian Asset Management LLC is an investment advisory firm catering to investment companies, pension and profit sharing plans, charitable organizations, corporations and government entities. It manages over $49 billion in assets.

Investment strategy: Acadian Asset Management LLC offers a variety of mandates, covering both U.S. and foreign investments. The firm utilizes a team approach, screening a universe of companies across a global network on a daily basis and seeking for those that are undervalued and exhibiting positive earnings trends and potential. Acadian invests across all market-caps. The firm applies both structured stock and sector/country valuation models that examine value, earnings growth and price-related aspects. The valuation process determines a return prospect for each stock in the universe. At the stock level, Acadian uses quantitative factors such as valuation, earnings, size and price movements, while at the sector/country level the firm uses valuation, risk, growth and economic factors. The universe is ranked from most to least attractive stocks. A bottom-up selection process is used to establish the portfolio's country and sector weights. The optimized portfolios are then reviewed by the investment team prior to trading.

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



Shares Held - 06/30/2011

Shares Held - 09/30/2011

Change in shares

Apple Inc.





Companhia de Bebidas das Americas (Ambev)





Embraer SA





Pfizer Inc.





Discover Financial Services





Tim Participacoes S.A.





Merck & Co. Inc.





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My favorite among above stocks are Embraer and Apple.

Embraer is a manufacturer and supplier of commercial and defense aircraft. Embraer’s EPS forecast for the current year is 2.18 and next year is 2.58. According to consensus estimates its topline is expected to grow 7.70% in the current year and 11.20% next year. It is trading at a forward PE of 11.27. Out of 13 analysts covering the stock nine are positive and have buy recommendations and four have hold ratings. The median consensus price target for the stock is $39.00 versus the current market price of 29.26.

I like Embraer from both short and medium term perspective. In the short term Embraer’s operating margins are likely to benefit from depreciation of the real vs U.S. dollar. The real depreciated ~20% vs the USD from 1.56 on July 1 to 1.88 on September 30. The majority of ERJ’s sales are in USD while 30% of ERJ’s COGS and 40% of SG&A are dominated in the real. Thus, strengthening USD is a near term positive for Embraer’s operating margins. In the medium to long term Embraer is well set to benefit from growth in production in commercial OE markets for next several years. ERJ has a dominant position in the 70-110 seat market and is the first business jet manufacturer with emerging market economics. Both markets are beginning to recover and ERJ is likely to see total sales growth at 10% CAGR and EPS growth at 20% CAGR through 2014. At 11.27x forward earnings Embraer is available at a discount to its U.S. peers and I believe it is a good value buy at current levels.

Apple is another interesting buy among above stocks. I like Apple despite of its recent earnings miss. This miss was largely due to customers holding back on new iPhone purchases before iPhone 4S launch in October. iPhone 4S is currently is currently seeing very strong demand with over 4mn units sold in just three days after the launch in early October. Recent read throughs from the earnings calls of AT&T (NYSE:T), Verizon (NYSE:VZ) and Sprint (NYSE:S) have also indicated strong trends for iPhone 4S. The carriers have witnessed a slowdown in sales of Android and Blackberry phones in addition to iPhone sales from Q2 to Q3. There is a good chance that a number of Android/Blackberry customers also waited to switch to the iPhone 4S in October and that’s why they delayed purchases.

Going forward, in the near term, Apple is likely to continue seeing strong demand on the back of holiday sales and anticipated iPad3 and iPad5 launches next year. From a medium to long term perspective, Apple’s secular growth and market share gain story in the smart phone and tablet space is likely to continue for the next several years. Apple's strategy of customer centric innovation and launching products which have a potential to create whole new markets on their own is still intact and if one go by Steve Job’s biography, Apple TV is likely the next such product in the line. At valuation of just 8.25x forward earnings (adjusted for cash), Apple is trading at very attractive levels and I believe it is a good opportunity to go long on the stock.

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