5 Stocks Goldman Sachs Wunderkind Eric Mindich Has Recently Bought

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Includes: CFX, ETFC, GOOG, MHS, NWSA
by: Stock Croc

Eric Mindich is the youngest person ever to be named partner at Goldman and Sachs (NYSE:GS), when he earned the coveted title at the age of 27 in 1994. For 17 years he held a very impressive trading and investment record at Goldman and Sachs and in 2004, he founded the hedge fund Eton Park. Today, the fund manages about $13 billion. He is very strategic, focusing on long/short equity strategies, selective private investments and merger arbitrage. Lately he has been quite bullish on gold and also the stock market despite the recent volatility. In this article I will analyze five stocks that Mindich has recently invested in to determine if they’re solid investments that will continue to grow in value. Here is my actionable analysis:

News Corporation (NASDAQ:NWSA): News Corporation has a market cap of $41.87 billion with a price to earnings ratio of 16.30. Its 52 week trading range has been between $13.38 and $18.35 and at the time of writing it is trading at around was $17. It reported third quarter 2011 earnings of $7.96 billion a decrease from second quarter earnings of $8.96 billion. The income statement showed net income in the third quarter of $738.00 million, a significant increase from the second quarter net income of $683 million. It has quarterly revenue growth of 7.20%, a return on equity of 11.28% and pays a dividend with a yield of 1.10%.

One of News Corporation’s competitors is Time Warner Inc (NYSE:TWX). Time Warner has a market cap of $33.35 billion and is trading at around $33. It has a price to earnings ratio of 12.65, quarterly revenue growth of 10.80%, a return on equity of 8.96% and pays a dividend with a yield of 2.70%. This data indicates that both companies are performing on par. Mindich holds 25,900,000 shares of News Corporation, buying the entire holding in the third quarter 2011. The average purchase price per share was $16.21. Based upon the last trading price of $16.61, he has made a return of 2.47%.

News Corporation´s cash position has worsened in the last quarter. Its balance sheet showed $11.43 billion in cash for the third quarter a decrease from $12.68 billion cash in the second quarter. News Corporation’s quarterly revenue growth of 7.20%, versus an industry average of 13.30%, and a return on equity of 11.28%, versus an industry average of 7.30%, indicates that it is underperforming many of its peers.

The earnings outlook for the diversified entertainment industry is currently poor due to the depressed economy and negative consumer sentiment. This has had a significant effect on advertising revenues as other businesses seek to cut costs to maintain profitability.

However, even in this difficult operating environment News Corporation has generated increased earnings and has solid performance indicators. On this basis despite the decrease in balance sheet cash I agree with Mindich’s investment decision and rate News Corporation as a buy.

E*TRADE Financial Corporation (NASDAQ:ETFC): E*TRADE has a market cap of $2.32 billion with a price to earnings ratio of 16.04. Its 52 week trading range is between $7.74 and $18.13 and it is currently trading at around $8. It reported third quarter 2011 earnings of $507.28 million a decrease from second quarter earnings of $517.62 million. Third quarter net income was reported at $70.67 million an increase from second quarter net income of $47.12 million. It has quarterly revenue growth of 23.20% and a return on equity of 12.85%. One of E*TRADES’ competitors is The Charles Schwab Corporation (NYSE:SCHW). Charles Schwab has a market cap of $14.47 billion and is trading at around $11. It has a price to earnings ratio of 16.97, quarterly revenue growth of 11.10% and a return on equity of 11.98%. It pays a dividend with a yield of 2.00%. Based on these indicators it is being outperformed by E*TRADE. Eric Mindich holds 3,415,934 shares of E*TRADE, buying the entire holding in third quarter 2011. The average purchase price per share was $12.29. Based upon the last trading price of $8.18, he has made a return of -33.44%.

E*TRADE’s cash position has improved with $2.88 billion in cash for the third quarter 2011 an increase from $2.04 billion cash in the second quarter. The net tangible assets have increased to $4.95 billion in the third quarter from $4.81 billion in the second quarter. E*TRADE’s quarterly revenue growth of 23.20%, versus an industry average of 15.30%, and a return on equity of 12.85%, versus an industry average of 6.00%, indicates that it is outperforming many of its competitors.

The outlook for the investment brokerage industry is generally negative primarily due to the earnings outlook for companies operating in the investment management and financial advisory industry remains poor in the short term, due to the worsening economic climate, poor investment returns and high unemployment rate. These have led to a decreased demand for investment broking services and financial advice. However, E*TRADE operates in the discount self directed investment market and derives the majority of its revenue from these investors trading through is brokerage portals. This tends to mitigate the negative industry outlook as these investors are continuing to purchase stocks.

Despite the industry outlook, E*TRADE has substantially increased its net income in the third quarter 2011 in difficult operational conditions. It also has strong fundamental performance indicators and increased its balance sheet cash. On this basis I believe that E*TRADE is well positioned for growth especially when the economy starts to improve. Accordingly, I agree with Mindich’s decision to invest in the company and rate it as a buy.

Medco Health Solutions (NYSE:MHS): Medco has a market cap of $21.15 billion and has a price to earnings ratio of 15.89. Its 52 week trading range has been between $44.60 and 66.38 and it is currently trading at around $55. Third quarter 2011 earnings of $16.98 billion were reported, a marginal decrease from second quarter earnings of $17.07 billion. Third quarter net income was $355.40 million, an increase from second quarter net income of $342.80 million. It has quarterly revenue growth of 4.10% and return on equity is 35.22%. One of Medco’s closest competitors is McKesson Corporation (NYSE:MCK), which has a market cap of $19.70 billion and is trading at around $80. It has a price to earnings ratio of 17.72 quarterly revenue growth of 9.70%, a return on equity of 16.64% and pays a dividend of 1.00%. Based on this data it is outperforming Medco on growth but management are not generating as higher return on shareholders’ equity. Mindich holds 3,159,000 shares of Medco, buying the entire holding in the third quarter 2011.The average purchase price per share was $54.46. Based upon the last trading price of $55.34, he has made a return of 1.61%.

Medco’s cash position has improved with the balance sheet showing $161.50 million in cash for the third quarter, an increase from $92.40 million in the second quarter. The net tangible assets have increased with $3.55 billion in the third quarter 2011 from $3.44 billion in the second quarter. Medco’s quarterly revenue growth of 4.10%, versus an industry average of 6.70%, and a return on equity of 35.22%, versus an industry average of 16.60%, indicates that it is underperforming many of its competitors on earnings growth but management are delivering a better return on share holders’ equity.

The earnings outlook for the wholesale drugs industry is quite positive. While it is predicted that revenues will decline as a result of the sluggish global economy and decreasing demand, Barclays Capital have predicted that operating profit will grow dramatically as wholesalers benefit from more profitable generic drugs replacing brand-name drugs.

Based on the positive industry outlook coupled with Medco’s third quarter increase in net income, its increased balance sheet cash and its strong performance indicators I support Mindich’s decision to invest in the company as it is well positioned to capitalize on any uplift in the economy. Accordingly I rate the company as a buy.

Motorola Mobility Holdings Inc (NYSE:MMI): Motorola Mobility has a market cap of $11.61 billion and doesn’t have a price to earnings ratio. Its 52 week trading range has been between $20.77 and $39.20 and it’s trading at around $39, close to the top of that range. It reported third quarter 2011 earnings of $3.26 billion, a decrease from second quarter earnings of $3.34 billion. Third quarter net income was -$32 million a significant increase from second quarter net income of -$56.00 billion. It has quarterly revenue growth of 10.60% and a return on equity of -2.36%. One of Motorola Mobility’s main competitors is Nokia Corporation (NYSE:NOK). Nokia Corporation has a market cap of $24.15 billion and last traded at around $6.50. It has quarterly revenue growth of -12.60%, a return on equity of 2.22% and a price to earnings ratio of 26.37. It pays a dividend with a yield of 7.30%. Based on these indicators is Motorola Mobility has stronger growth prospects but Nokia’s management is deriving a greater return on shareholder equity. Mindich holds 2,200,000 shares of Motorola Mobility, buying the total holding in the third quarter 2011. The average purchase price per share was $30.75. Based upon the last trading price of $38.79, he has made a return of 26.15%.

Motorola Mobility’s cash position has improved. The balance sheet showed $3.08 billion in cash for the third quarter 2011 an increase from $3.03 billion in the second quarter. The net tangible assets have increased to $4.95 billion in the third quarter 2011 from $4.90 billion in the second quarter. Motorola’s quarterly revenue growth of10.60 %, versus an industry average of 28.80%, and a return on equity of -2.36%, versus an industry average of 11.80%, indicates that it is performing many of its competitors.

The outlook for the communications equipment industry is quite negative. This is primarily due to concerns over the U.S. economy, Europe’s debt crisis, tighter monetary policies and higher unemployment which is creating negative consumer sentiment and driving down demand. Standard & Poors recently cut its outlook on the communications equipment sub-industry to neutral from positive.

Overall I do not believe that an investment in the communications equipment industry is a worthwhile investment considering the negative industry outlook, the high degree of competition amongst handset manufactures and strong market position that has been established by the Apple iPhone. When this is considered in conjunction with Motorola’s weak performance indicators and third quarter net loss I do not agree with Mindich’s decision to invest in the company. Accordingly I rate Motorola Mobility as a sell.

Colfax Corporation (NYSE:CFX): Colfax has a market cap of $1.27 billion and a price to earnings ratio of 43.65. Its 52 week trading range has been between $16.64 and $32.69. It is currently trading at around $29. It reported third quarter 2011 earnings of $170.29 million, a significant decrease from second quarter earnings of $186.75 million. Third quarter net income was $3.69 million a large decrease from second quarter net income of $10.39 million. It has quarterly revenue growth of 28.60% and a return on equity of 12.42%. One of Colfax’s main competitors is Robbins and Myers Inc (NYSE:RBN), which has a market cap of $2.12 billion and is currently trading at around $46, with a price to earnings ratio of 14.27. It has quarterly revenue growth of 85.10%, a return on equity of 9.81% and pays a dividend with a yield of 0.40%. Based on these indicators, it is outperforming Colfax. Mindich holds 481,400 shares of Colfax, buying the entire holding in the third quarter 2011. The average purchase price per share was $24.30. Based on the last trading price of $29.02, he has made a return of 19.42%.

Colfax’s cash position has improved in the last quarter. The balance sheet showed $64.44 million in cash for the third quarter 2011 an increase from $64.22 million in the second quarter. Colfax’s quarterly revenue growth of 28.60%, versus an industry average of 11.60%, and a return on equity of 12.42%, versus an industry average of 11.90%, indicates that it is outperforming many of its competitors.

The earnings outlook for the diversified machinery industry is quite positive with earnings growth expected to be solid despite the current poor economic outlook. This can be attributed to the ongoing resources boom, which has seen demand grow diversified machinery used in mining and related industries. In addition, the weak US dollar makes US exports more attractive, which should see an uplift in demand for US manufactured products, boding well for US based manufacturers such as Colfax.

Despite Colfax’s significant decrease in earnings and net income it has strong performance indicators and on this basis I agree with Mindich’s decision to invest in the company. Accordingly, I rate Colfax as a buy.

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