Eaton Vance's Top 7 Buys: 2 To Go Long, 1 To Avoid

 |  Includes: AON, APC, BA, C, CVX, DE, TWX
by: The Analyst Hub

Eaton Vance is an investment advisory and hedge fund management firm. The firm is a wholly-owned subsidiary of Eaton Vance Corp. The firm manages approximately $119 mn in the Eaton Vance series of mutual funds in addition to other funds.

Investment Strategy: Eaton Vance Management offers various strategies, covering long-only, opportunistic and customized approaches. The firm invests in both domestic and foreign stocks, including emerging markets, investing across all market-caps and investment style disciplines. Investment styles include value, growth and core. The investment process is centered on fundamental analysis, which is carried out at the security level. Eaton Vance Management aims to develop comparative advantages in terms of knowledge and information across the different market segments that the firm follows.

The following is a list of its top seven buys by market value in the last quarter, as released in their most recent 13F filing with the SEC.



Shares Held - 09/30/2011

Shares Held - 12/31/2011

Change in shares

Chevron Corp.





Anadarko Petroleum Corporation





Deere & Company





Citigroup Inc.





Time Warner Inc.





Aon Corporation





Boeing Co.





Click to enlarge

I like Anadarko Petroleum and Citigroup among above stocks. However one stock from the list which I would avoid is Deere & Company.

Anadarko Petroleum Corporation is an independent oil and natural gas exploration and production company. As of December 31, 2010, it had 2.4 billion barrels of oil equivalent of proved reserves. Anadarko's portfolio of assets includes positions in onshore resource plays in the Rocky Mountains region, the southern United States and the Appalachian basin.

Anadarko operates in three operating segments: oil and gas exploration and production, midstream, and marketing. Anadarko's EPS forecast for the current year is $3.15 and next year is $3.35. According to consensus estimates, its top line is expected to grow 22.40% in the current year and 6.00% next year.

Anadarko is one of the best exploration picks among large cap US oil and gas stocks. The company has lined up multi-year backlog of exploration potential across three major provinces: the US Gulf of Mexico, the West African Atlantic Transform margin and East Africa. Any single discovery in these can significantly move the needle for the stock and cause substantial upside.

In addition, the company has a robust domestic asset base and discovered resources have an associated value of around $42 per share. Current macro environment with high oil prices and low valuation of oil and gas stocks provide a unique opportunity for investors to buy good companies in the sector and Anadarko is definitely has attractive risk/reward ratio.

Citigroup is another good long from the above list, particularly for aggressive traders. Citigroup is trading at 0.6x tangible book value. I like the company because of its emerging market exposure and ongoing liquidation of Citi Holdings which will help in reducing the earnings and ROE drag. Citi will see better than average loan growth in the longer-term when run-off balances at holdings decline and Citi's emerging market loan growth becomes increasingly visible. In the near term, Citi is all set to benefit from reduced competition in emerging markets as European peers retrench. The biggest positive catalyst for the stock would be eurozone stabilization.

One stock from the above list which I would like to avoid is Deere & Company. Deere & Co. is an agriculture machinery manufacturer. I am bearish on Deere primarily due to margin concerns going forward due to "Interim Tier IV" regulations. On 1/1/2012, "Interim Tier IV" (IT4) emission rules began applying to engines of 75-174 HP in Western Europe and North America. Deere transitioned almost all of the products it sells in NA and Western Europe to meet these stricter IT4 emissions standards in 2012.

Although Deere is likely to raise prices of some of its products, it is unlikely that the cost incurred in these upgrades will be fully recovered, causing a good amount of margin headwinds in 2012. My other concern with Deere is high inventory level for North American combines which will adversely affect sales and margins in 2012.

Please note that although I am bearish on Deere, I am bullish on the agriculture fundamentals going forward. I like other companies in the sector, like Monsanto (NYSE:MON) which is likely to benefit in the short term from its new product launches (RR2Y soybean and reduced-refuge corn) this fall. If one wants to pursue market neutral strategy; short Deere, long Monsanto can be a good alpha trade 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.