In this installment of my analysis of recent purchases made by renowned investors and funds, I will look at 5 stocks bought by Moore Capital Management using the latest available SEC filings of the fund. Moore Capital Management (MCM) has equity positions worth $2.1 billion. In addition to estimating the price MCM might have paid for the stocks, I have also calculated my preliminary price targets using relative valuation to judge the attractiveness of these companies at current prices. Based on this analysis, I have shortlisted 5 stocks that offer a minimum return of 20% from current levels.
Sectors represented on the list include Basic Materials, Healthcare, Consumer Cyclical, Services, and Energy.
1) Parker-Hannifin Corporation. (PH)
PH is a manufacturer of fluid power systems, electromechanical controls, and related products. The company has a market capitalization of $12.4 billion and has easily outperformed the broader markets during the last 5 years returning 52% to its shareholders compared to the decline of 7% in the S&P500. The company's projected long term earnings growth rate of 6% is double the growth rate of the previous 5 years.
Moore Capital Management initiated a position in PH by acquiring 28,000 shares at an estimated average price of $73 which is 14% below yesterday's closing price of $83 a share. Applying my estimated P/E of 13 to 2013 EPS estimate of $7.8, my initial 12-18 month price target for PH is $102 a share. A return of 22% is possible from current levels.
2) Pfizer Inc. (PFE)
PFE reported fourth-quarter results on Tuesday topping the Wall Street expectations. This was the first quarterly results since PFE lost U.S. patent protection for Lipitor. The U.S. sales fell 42% and worldwide sales were off by 24%. The company also announced that the planned sale of its animal health and nutrition units would take place between July 2012 and July 2013. The sale is expected to bring $15 billion to the PFE coffers.
The company grew its earnings at a 2% rate during the last 5 years and is now expected to increase its earnings at an annual rate of 3%. Moore Capital Management bought 1.92 million shares during the 3rd quarter, an increase of 236%, and now owns a total of 2.74 million shares of PFE stock. Applying a P/E of 11 to 2012 average analyst EPS estimate of $2.3, my 12-month price target of $25 a share is obtained. Including dividends, the stock is expected to return 22% during the next 12-months.
3) Verizon Communications (VZ)
Verizon is a $107 billion communication giant offering communication services in over 150 countries. Like many of its peers, the company pays a healthy dividend of $2 a share yielding in excess of 5%. The company is expected to grow its earnings at an annual rate of 12% during the next 5 years on par with the broader communications industry.
Moore Capital Management practically initiated a new position in VZ by purchasing approximately 1.66 million shares at an estimated average price of $35 a share to its total position in VZ to 1.7 million shares. The stock currently trades at approximately $38 a share. My 12-month price target for VZ is $47 a share obtained by applying a multiple of 19 to 2012 EPS estimate of $2.49.
4) Temper-Pedic International Inc. (TPX)
Temper-Pedic manufactures, markets, and distributes mattresses and pillows in approximately 80 countries worldwide. The Lexington, KY based company has a market capitalization of $4.2 billion. TPX reported fourth-quarter results on January 24 and issued 2012 EPS guidance in the range of $3.8 to $3.95 ahead of mean analyst expectations of $3.77. This would imply a 21% growth rate (at midpoint of the guidance). The revenues are expected to increase by 14% this year.
Moore Capital Management initiated a new position in TPX by acquiring 27,200 shares at an estimated average price of $62 10% below its current price of $68 a share. My target of $82 implies an additional return of 23% from current levels.
5) Petroleo Brasileiro SA (PBR)
PBR is Brazil's state controlled oil producer. It was in the news yesterday (February 1, 2012) when reports emerged that the company planned to sell $7 billion in overseas bonds to help finance $225 billion of investments in an effort to double its oil output by 2020. Analysts expect the company to grow its earnings at an annual rate of 5% compared to the 16% growth of the industry.
Moore Capital Management initiated a new position in PBR by purchasing approximately 290,000 shares at an estimated average price of $29 a share which is modestly below the current price of $31. Applying my P/E estimate of 11 to 2012 EPS estimate of $3.46 a share, my 12-month price target of $38 is obtained. A return of 23% is possible from current levels.
As always, please do not consider this list as a "buy" list, rather use this list as a starting point for your research. Of the companies listed above, I find PH and TPX particularly attractive based on fundamentals and long-term growth prospects.