In this article, via an analysis (based on the latest available Q3 institutional 13-F filings) of the investing activities of the world largest fund managers managing between $100 billion and over a trillion dollars, we identify the e-commerce company stocks that are being accumulated and those being distributed by these mega managers. We then crossed that data with the e-commerce companies that are trading at value prices, based on their projected earnings for FY 2012, operating cash flow on a trailing-twelve-month (TTM) basis, and other valuation measures such as price to book (P/B) and price to sales (PSR) ratios, and came up with a list of undervalued companies in the e-commerce group that are being accumulated by these mega fund managers, and those being distributed by them. The list includes prominent managers such as Wellington Management ($1.6 trillion in total assets under management), Vanguard Group ($1.4 trillion), Fidelity Investments ($640 billion), T Rowe Price ($330 billion), and Goldman Sachs Asset Management ($580 billion), among others.
Based on our analysis, we determined that mega fund managers are bullish on e-commerce stocks, and are over-weight in the group. During the September quarter, these mega fund managers together added a net $1.80 billion to their $67.47 billion prior quarter position in the group, selling $3.71 billion and buying $5.51 billion worth of stocks in the group. Furthermore, overall they are overweight in the group by a factor of 1.2; that is, taken together mega funds have invested 1.3% of their capital in the e-commerce group companies compared to the 1.1% weighting of the group in the overall market.
The following are the e-commerce group companies that mega fund managers are bullish about, and that are also trading at a discount to their peers in the group:
eBay Inc. (EBAY): EBAY is a leading provider of online marketplaces and electronic payment services via ebay.com and paypal.com. At $16.95 billion, this is the second largest position for mega funds in the e-commerce group, including cutting a minor $237 million in Q3. Also, together mega funds hold 44.2% of the outstanding shares, significantly more than their 32.6% weighting in the group. The top buyers were Wellington Capital Management ($231 million), Fidelity Investments ($143 million) and Neuberger Berman Group ($108 million). The top holders are Wellington Capital Management ($2.20 billion), Janus Capital Management ($2.08 billion) and Fidelity Investments ($1.94 billion).
Overall, 746 institutions hold 81% of company shares, with Wellington, Janus and Fidelity being the top holders with 5.7%, 5.4%, and 5.1% of the outstanding shares respectively. EBAY trades at a discount 12-13 forward P/E compared to the 71 average for its peers in the e-commerce group, while earnings are projected to rise at a 15.6% compound growth rate from $1.73 in 2010 to $2.31 in 2012. Also, it trades at 2.2 P/B and 12.2 P/CF compared to averages of 5.4 and 19.1 respectively for its peers in the e-commerce group.
Priceline.com Inc. (PCLN): PCLN, the pioneer of name-your-own price service, is a diversified online travel services company. It provides airline ticket, hotel room, car rental, vacation package, and cruise services through Priceline.com. Mega funds added a net $502 million to their $10.22 billion prior quarter position, and taken together mega funds hold 44.9% of the outstanding shares, significantly greater than their 32.6% weighting in the group. The top buyers were T Rowe Price ($548 million) and Fidelity Investments ($163 million); and the top holders are T Rowe Price ($1.82 billion), Fidelity Investments ($1.41 billion), Vanguard Group ($928 million), Ameriprise Financial ($914 million) and State Street Corp. ($820 million).
Overall, 602 institutions hold company shares, with T Rowe Price, Fidelity and Marsico Capital Management ($964 million) being the largest holders with 7.6%, 5.9% and 4.2% of the outstanding shares respectively. PCLN trades at a discount 16 forward P/E compared to the 58 average for its peers in the Internet Services group, while earnings are projected to rise at a 49.0% compound growth rate from $13.49 in 2010 to $29.96 in 2012. Also, it trades at 9.6 P/B and 19.2 P/CF compared to averages of 3.6 and 29.4 respectively for its peers in the Internet Services group.
Expedia Inc. (EXPE): EXPE is one of the largest online travel companies in the world, and provides travel products and services to leisure and corporate travelers, offline retail travel agents, and travel service providers through a portfolio of brands. These include its flagship Expedia.com website, and also Hotels.com, Hotwire.com, Venere, TripAdvisor.com, Classic Vacations, Expedia Local Expert, and Egencia. Mega funds added a net $32 million to their $1.94 billion prior quarter position, and taken together mega funds hold 26.8% of the outstanding shares, slightly less than their 32.6% weighting in the group. The top holders are Capital World Investors ($444 million), Vanguard Group ($281 million), State Street Corp. ($195 million) and Goldman Sachs Asset Management ($168 million).
Overall, 422 institutions hold 81.8% of company shares, with Capital World, Vanguard, Pennant Capital Management ($205 million), Davis Selected Advisors ($191 million) and State being the largest holders with 6.9%, 4.4%, 3.3%, 3.0% and 3.0% of the outstanding shares respectively. EXPE trades at a discount 12 forward P/E compared to the 58 average for its peers in the Internet Services group, while earnings are projected to rise at a 13.2% compound growth rate from $1.70 in 2010 to $2.18 in 2012. Also, it trades at 2.4 P/B and 6.7 P/CF compared to averages of 3.6 and 29.4 respectively for its peers in the Internet Services group.
Select stocks that mega funds as a group are bearish on (see Table) include online movie rental subscription services provider Netflix Inc. (NFLX), in which they cut $103 million from a $1.40 billion prior quarter position, and Chinese online retailer e-Commerce China Dangdang Inc. (DANG), in which they cut $3 million from a $14 million prior quarter position (representing only 2.9% of the outstanding shares). Furthermore, besides the undervalued positions listed above, mega funds as a group are also bullish on leading online retailer Amazon.com Inc. (AMZN), in which they added $1.12 billion to their $31.43 billion prior quarter position, Chinese Internet TV and video-streaming services provider Youku.com Inc. (YOKU), in which they added $86 million to their $271 million prior quarter position, and China-based consolidator of hotel accommodations and airline tickets Ctrip.com International Ltd. (CTRP), in which they added $87 million to their $1.45 billion prior quarter position.
Click to enlarge
General Methodology and Background Information: The latest available institutional 13-F filings of over 30+ mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group.
These mega fund managers number less than one percent of all funds, and yet they control almost half of the U.S. equity discretionary fund assets. The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information as a starting point to conduct his own due diligence.
This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.