Of all the funds that I follow, I am most influenced by Saturna Capital’s Amana Funds. Saturna Capital Corporation is the manager of these Morningstar five star rated funds (Amana Trust Income (AMANX) and Amana Trust Growth (AMAGX)). These funds are known for their low turnover and are run by a very respectable asset manager in Mr. Nicholas Kaiser. The total value of all Saturna positions is approximately $3 billion.
The firm filed its 13F for the 3rd quarter and reported several share purchases over a broad spectrum of the market. In this article, I will present 5 significant investments made by Saturna during the 3rd quarter and determine if further detailed analysis is warranted based on preliminary valuation. All data was sourced from Morningstar and Yahoo Finance.
1. Google (NASDAQ:GOOG): Google appreciated by approximately 9% during 2011 compared to the 2% decline in the NASDAQ index. Saturna purchased 56,598 shares during the 3rd quarter at an estimated average price of $550 a share. The stock has appreciated significantly since Saturna’s purchase and currently trades at $646 a share. The company was also purchased by Brown Investment Advisory and was covered here. Applying my initial earnings multiple of 21 to consensus 2012 estimate of $38.19, the price target of $802 would imply a 24% return from current levels.
2. Fastenal (NASDAQ:FAST): Fastenal sells industrial and construction supplies such as fasteners, tools, hydraulics and pneumatics, janitorial supplies and metals. Saturna bought 65,216 shares during the 3rd quarter, an increase of 33%, at an estimated average price of $33.33. Like GOOG, FAST has also seen significant price appreciation and currently trades at $43.61. Fastenal grew at an annual rate of 8.3% during the last 5 years and is projected to grow at a 17% clip during the next few years. Analysts expect the firm to report a 2012 EPS of $1.39. Applying a P/E of 27.7 to this EPS estimate, a 12-month price target of $38.5 is obtained. FAST appears moderately overvalued and should be avoided at current levels.
3. Mattel (NASDAQ:MAT): This maker of Barbie dolls has a market cap of $9.4 billion. The stock has performed well during the last year gaining about 9%. Saturna initiated a new position in MAT by purchasing 200,000 shares at an estimated average price of $25.75. My initial price target for MAT is $33 a share, obtained by applying a P/E of 14 to 2012 EPS estimate of $2.35. Trading at $27.7, a return of 16% is possible. MAT is expected to grow its earnings at an annual rate of 10.6% and merits a deeper evaluation in my opinion.
4. Emerson Electric Co. (NYSE:EMR) – EMR is a diversified technology company engaged in designing and supplying product technology and providing engineering services to industrial, commercial and consumer markets. This $36 billion company is expected to grow at an annual rate of 13% after growing at a rate of 4% during the last 5 years. Saturna held 450,000 shares at the end of Q3 after purchasing approximately 100,000 shares during the 3rd quarter at an estimated average annual price of $47.45. Unlike the 3 companies listed above, the company’s stock price has since decreased marginally to $46.59. I believe that EMR is undervalued by approximately 8% at these levels. My 12-month price target of $51 a share is obtained by applying a P/E of 14.3 to average analyst 2012 EPS estimate of $3.55.
5. Hewlett Packard (NYSE:HPQ) – HPQ shareholders had a terrible 2011 with the stock losing approximately 39% compared to the relatively unchanged performance in the S&P 500. Saturna was a believer in HPQ having acquired 149,830 shares at an estimated average price of $29.21. The stock currently trades at just under $26 a share. Going forward, analysts expect the company to grow at an annual rate of 4.5%. Applying a P/E of 7.8 to 2012 EPS estimate of $4.09, my 12-month price target of $32 is obtained. The stock currently trades at a discount of 19% and deserves further analysis.
In summary, based on my preliminary analysis, Google, Mattel and Hewlett Packard appear undervalued while Fastenal is possibly overvalued. Emerson is slightly undervalued at current levels.
Disclosure: I am long AMAGX and AMANX.