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The following is a list of top ten stocks (by market value) that JPMorgan Chase and Co. bought in the last quarter:



Shares Held - 06/30/2011

Shares Held - 09/30/2011

Change in price (30 Sept. - 21 Nov.)

Kraft Foods Inc.





Google Inc.





Microsoft Corporation





Occidental Petroleum Corporation





Emerson Electric Co.










Comcast Corporation





Capital One Financial Corp.





Target Corp.





Merck & Co. Inc.





Source: 13F filing

Most of these stocks are performing quite well. Google, Occidental Petroleum, Emerson Electric, Vimpel Communications, Target Corp. and Merck & Co. have outperformed S&P500 by a good amount in last one and half months. Among other stocks Kraft Foods, Comcast and Capital One are almost flat while Microsoft has seen a slight decline. Going forward, I find favourable risk reward in Kraft Foods, Google, Microsoft and Capital One and believe they can outperform the markets in medium to long term.

Kraft Foods Inc. manufactures and markets packaged food products, including biscuits, confectionery, beverages, cheese, convenient meals and various packaged grocery products. Kraft is trading at a forward PE of 13.57. Its EPS forecast for the current year is 2.27 and next year is 2.53. According to the consensus estimates, Kraft’s top line is expected to grow 10.30% in the current year and 3.40% next year. Trading at a forward PE of 13.57, Kraft’s valuations are in line with its peers despite of its above average growth rate. I believe this will change going forward as Kraft’s is planning to split up its high growth Snacks business and the stable return Grocery business in FY12. This will highlight above peer growth profile of the global snacks business and hence help company achieve a better valuation.

Google Inc. is the world’s #1 search engine and online advertising company. Google is trading at a forward PE of 13.05. Its EPS forecast for the current year is 36.86 and next year is 43.86. According to the consensus estimates, Google’s top line is expected to grow 33.10% in the current year and 22.70% next year. Google has a much undervalued asset in the form of Youtube where only 3% of current videos are monetized through video advertising. Given the secular shift of viewers from offline media to online, I believe online video advertising has a big potential. Google’s recent announcement regarding launch of 100 online video channels on YouTube that would feature new original programming is a very important strategic step in the right direction in getting quality content to attract advertisers. Youtube is likely to become a major growth driver for Google in next few years. With over 18% earnings growth, cash pile of over $40bn and a secular tailwind in the form of online advertising growth, I find Google’s current valuations very low.

Microsoft Corporation is engaged in developing, licensing and supporting a range of software products and services. Microsoft is trading at a forward PE of 8.06. Its EPS forecast for the current year is 2.76 and next year is 3.05. According to the consensus estimates, Microsoft’s top line is expected to grow 7.20% in the current year and 7.30% next year. Microsoft is a good medium term investments in these uncertain times. Its cash cushion limits the downside as well as enable it to make opportunistic acquisition if the valuations of target companies reach attractive levels. In addition, Microsoft is also taking a lot of new initiatives which can drive meaningful growth over the next few years. Some of the major catalysts for the stocks are the Windows 8 launch, Office 365 gaining traction and a successful adoption of Nokia-WP7 phones. I think Microsoft offers an attractive risk reward for investors who can hold the stock for next one year.

Capital One Financial Corporation operates in three business segments: Credit Card; Consumer Banking, and Commercial Banking. Capital One is trading at a forward PE of 6.58. Its EPS forecast for the current year is 7.54 and next year is 6.08. According to the consensus estimates, Capital One’s top line is expected to grow 1.10% in the current year and 12.40% next year. In past few months, Capital One has announced two very opportunistic acquisitions of ING Direct and U.S. card business of HSBC on very attractive and EPS accretive terms. Stock has come down due with the broader markets in the past few months but EPS estimates have actually gone up for the company. With its transparent business model, Capital One makes an attractive buy in current uncertain time and is likely to outperform going forward.

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