Wellington's Best Performing Top Buys

by: The Analyst Hub

Wellington Management Company, LLP is an investment advisory and hedge fund firm managing over $300 billion in equity assets. The firm manages Hartford series of funds in addition to other funds. WMC caters to individuals, institutions and pension and profit sharing plans, charitable organizations, banking and corporations.

Investment Strategy: Wellington Management employs various strategies covering domestic and international markets. The firm looks for attractive investments across different market-cap and style spectrums. The investment process generally involves understanding global trends and outlooks for securities and sectors, and evaluating potential candidates on valuation, models, opinion and recommendations from different sources. The global value strategy focuses on financially sound companies that are out of favor, display potential for above average returns, and are selling at low P/E ratios. The stock selection process combines fundamental research and valuation analysis from both quantitative and qualitative perspectives. Investments are primarily made in large-cap companies in developed markets, as well as in global companies located in emerging markets. Wellington Management Company also applies capital markets, currency, macroeconomic and technical analyses. The firm carries out proprietary research shared by various teams located globally.

The following is a list of Wellington's top seven best performing buys from the last quarter that have outperformed S&P500 (NYSEARCA:SPY) substaintially in the last three months.



Shares Held - 06/30/2011

Shares Held - 09/30/2011

Shares Bought in Q3

Change in share price since Sept. 30,2011

Google Inc.






Walt Disney Co.






Occidental Petroleum Corporation






PNC Financial Services Group Inc.






Blackrock Inc.






Fifth Third Bancorp






Alpha Natural Resources Inc.






Click to enlarge

Source: 13F filing

I like Walt Disney and Google the most among above stocks and see a further upside to their stock prices. One stock that I believe has become fairly valued after a recent run-up is Occidental Petroleum. I would recommend booking profits on Occidental Petroleum.

The Walt Disney Co. is a diversified media company with five operating segments, including Media (45% of revenue), Theme Parks (28% of revenue), Studio (18% of revenue), Consumer (7% of revenue) and Interactive (2% of revenue). The company has a world-class asset base, including 80% ownership of ESPN, the largest and most profitable cable network, the Disney Channel cable network, the ABC broadcast network, Walt Disney World and Disneyland theme parks, and the Walt Disney Studio.

In my view Disney's combination of superior growth over the next several years along with a stronger secular position creates attractive opportunity. In media space it will be difficult for any distributor to successfully compete without ESPN and Disney's networks. With ~12% annual increase in sports rights payments by ESPN over the last decade, the launching of new networks, and the extension to connected devices, ESPN has and will continue to see robust increases in the near future. In the domestic parks business, although consensus is building in appropriate levels of caution on margin expansion in '12 because of pre-opening costs associated with marketing and training, 2013 onward margins may surprise the street on the upside as new attractions begins to roll off, increasing the parks' incremental margins. Further, the company's expansion in the higher margin cruise business with the launch of Disney Dream and Disney Fantasy is expected to bode well for the investors. In addition to strong domestic trends, international markets continue to be a strong driver of revenue and margin growth for the company. Trading at 11.5x forward earnings, the stock doesn't look pricey and I recommend buying it.

I also like Google Inc. Google is the world's #1 search engine and online advertising company. Google is a defensive stock with high growth rate. The company's leadership position in its core search business is what makes it a defensive stock. Its main competitors, Bing and Yahoo (NASDAQ:YHOO) Search, have been unable to pose any meaningful threat to Google -- despite burning a good amount of cash. From a growth perspective, Google is likely to post a double digit growth rate for the next several years as a secular shift of advertisers from traditional media to online media continues. Its mobile business is likely to be another major growth driver.

Many of Google's web properties are undermonetized. For example, only 3% of YouTube videos are monetized through video advertising. This can increase significantly going forward. I see big potential from the recent announcement by Google that it will be launching 100 online video channels on YouTube that feature new original programming from celebrities such as Jay-Z, Madonna, Shaquille O'Neal and Tony Hawk.

This venture will generate ~25 hours of new, on-demand, original content per channel per day, and Google is reportedly paying up more than $100 million in advance to its content partners. I believe this and similar partnerships can potentially have a very big impact in the long run, as more and more original content comes online through these partnerships. Quality content is likely to bring in more advertisers, and thus help in further monetization of Google's properties.

Google is trading at a forward PE of just 14x, despite the expected 20% top and bottomline growth next year. Although some investors are worried about increasing dominance of Facebook, I think it's too premature to say that Facebook can adversely affect Google's core search and advertising business. I find the risk-reward profile of Google very attractive at these levels.

One stock in the above list that appears fairly valued after a recent run-up is Occidental Petroleum. Occidental petroleum has run up significantly in last couple of months. It is trading at ~$97 now, up 42% from its October lows of $68. The key drivers for the upside were recovery in oil prices and improved expectations on the company's development program in California. At these levels, I believe investors are fully pricing in the positives and any potential for the further stock price appreciation looks quite bleak in the near term.

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