Manning & Napier Advisors' Top Buys: 2 Potential Longs, 2 To Avoid

by: Rash Menaria

Manning & Napier Advisors, Inc. is a 100% independent employee-owned investment advisory firm founded by William Manning in 1970. The firm manages ~ $25 bn in the Manning & Napier series of mutual funds in addition to other funds and caters to individuals and institutions.

Investment Strategy: Manning & Napier Advisors, Inc. primarily employs a bottom-up, fundamental approach in identifying domestic investments. The firm invests across all market caps, seeking companies with strong strategic profile, such as strong market position, technological advantage, capital appreciation in a mature market, and high barriers to entry. In addition, target investments are companies with improving market share in consolidating industries and stocks with low price relative to fundamental or breakup value. For its international investments, Manning & Napier Advisors utilizes a top-down approach to evaluate economic trends and industry-specific factors to target opportunities that will benefit from these trends, such as those being created by global economic and political changes. The dividend focus strategy employs a fundamentally-based quantitative approach to identify high dividend-yielding stocks with high free cash flow and low likelihood of financial distress. The firm also manages sector-focused portfolios, including financial services, life sciences and technology.

The following is a list of Manning and Napier's top seven buys by market value in the last quarter, as released in the most recent 13F filing with the SEC.



Shares Held - 09/30/2011

Shares Held - 12/31/2011

Change in shares






Moody's Corp.





Virgin Media Inc.





Waters Corp.





Becton Dickinson and Company





Allscripts Healthcare Solutions Inc.





Cerner Corp.





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Source: 13F filing

I like Virgin Media and Cerner Corp the most among the above stocks. However, two companies in the above list that I would like to avoid are DIRECTV and Becton Dickinson and Company.

Virgin Media Inc. is the UK's largest cable operator with 'quad-play' service offerings in TV, phone, broadband and mobile. It has a 4.8 million customer base. Future subscriber trends in the UK seem to be healthier than they appear. Triple and quad-play churn has decreased and gross adds are improving. It is expected that a TiVo rollout will drive ARPU and margins growth in 2012. Recently VMED announced a doubling of its broadband speed for all its subscribers at no immediate incremental cost. This seems to be a move toward strengthening its competitive positioning in the fiber optic cable broadband segment and is also seen as a strong step to underpin 2012 forecasts.

It seems that VMED stock has bottomed out at low 20 levels after falling ~30% from the June 2011 peak. At current levels investors are pricing in near-zero top line growth, which might prove conservative. By clearing uncertainty over capex expansion, focusing on investments in the right areas and having a $450 million share repurchase authority in 2012, the company's management is sending positive signals and the investor sentiment is likely to change going forward.

Cerner Corporation designs, develops, markets, installs, hosts and supports healthcare information technology, healthcare devices and content solutions for healthcare organizations and consumers worldwide.

I believe that CERN is a good short-term as well as long-term buy. CERN is expected to maintain strong bookings growth in the next few quarters driven by greater adoption of technology in both hospital and physician markets. It is in a strong position to capitalize on the demand from the HITECH Act driving EHR adoption.

Further, new opportunities also exist within legacy bases as CERN's competitors Mckensson (NYSE:MCK) and Meditech are facing challenges in upgrading to 'meaningful use' versions of EHR software. This represents about 650 hospitals looking for other alternatives in the next two years and CERN is well positioned to capitalize on this opportunity.

From the longer-term perspective, the expected growth of new services such as ITWorks and REVWorks is likely to supplement the company's core growth well beyond the Stimulus Act period. As its offerings become integrated with its customer base and international growth picks up momentum, there is a potential for double digit growth in the next 10 years.

DirecTV Inc. provides digital television entertainment in the United States and Latin America. Its services include Direct-to-Home digital television, multi channel video programming distribution and video-on-demand. It also offers 160 national high-definition channels and 4 3D channels.

The U.S. pay TV market has reached a mature stage. There is also a stiff competition from cable operators. Going forward, DTV is expected to focus less on subscriber growth and more on retention and profitability. In addition, with new players such as AT&T (NYSE:T) and Verizon (NYSE:VZ) entering this saturated market with new offerings, DTV might even see subscriber losses. I believe this will result in a slower growth for the company going forward.

Also, DTV's programming expense and margins outlook is challenging. It is expected that increasing programming costs will have an incremental negative effect on the margins. Further, Internet TV may pose risk in the long term and the multiples for the pay TV industry may fall if the subscriber base declines.

Becton, Dickinson and Company, an American medical technology company develops, manufactures and sells medical devices, instrument systems and reagents worldwide. It operates two business segments, BD Medical and BD Diagnostics. BD Medical produces medical devices and BD Diagnostics provides products for safe collection and transport of diagnostic specimens, instrument systems and reagents to detect various diseases.

BDX is seeing several headwinds in its business. Trends indicate weak healthcare utilization with lower hospital occupancy rates and shortening lengths of stay. Although, BDX has a few new products in the pipeline, BD max, 4 mm pen needle, Accuri and self administration injectors; they are unlikely to have any impact on the company's top line until 2013/2014. In addition to bleak topline outlook in the near term, BDX's margins also seem to be under pressure with concerns over pricing. Further, BDX is trading at the higher end of the medical supplies companies, which make it susceptible to a correction 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.