BlackRock's Top Underperforming Sells: 2 Potential Shorts, 2 To Buy

by: Rash Menaria

BlackRock is one of the most influential financial institutions in the world. It manages assets worth ~$ 3.5 trillion. I discussed BlackRock's best performing buys from the September quarter in a previous article. It is also interesting to have a look at some of its winning sells from the September quarter. These stocks have underperformed S&P 500 (NYSEARCA:SPY) by at least 1200 bps since the end of that month.



Shares Sold in Sept. Quarter

Shares Held as on 09/30/2011

Change in share price since Sep 30th

Hospira Inc.





Arch Coal Inc.





Virgin Media Inc.





Buckeye Partners





Target Corp.





The Coca-Cola Company





Verizon Communications Inc.





Click to enlarge

Source: 13F Filing

I believe Hospira and Verizon are likely to continue their underperformance going forward. However, two stocks that are trading at attractive valuations after the recent underperformance are Coca-Cola and Virgin Media and I would recommend buying these companies.

Hospira Inc. is a specialty pharmaceutical and medication delivery company. It develops, manufactures and markets products that help improve the safety and productivity of patient care. It is a leading player in specialty injectable pharmaceuticals and the largest standalone player in generic injectables.

HSP's market share has seen a steady decline ever since it received the warning letter to its Clayton and Rocky Mount facilities by FDA. Further, its McPherson facility also received six Form 483 observations in Jan 2012. In a recent call the company management said that it has extended its scheduled shutdown of Rocky Mount plant by a few more weeks. There is no further clarity on the timelines of the potential resolution of its manufacturing issues. These issues are expected to hamper its production severely directly impacting its top line growth in 2012. Hospira's shares have risen 26% after hitting its 52-week lows in December. I don't see any further upside likely in the near term and believe that this is just a dead cat bounce. I expect the stock to resume its downward trajectory soon.

Verizon is another stock I am bearish on. Verizon is seeing secular pressure from declining wireline business and pension dilution. Further, high valuation (14x Forward PE) limits any potential upside for Verizon in the near term.

Virgin Media and Coca-Cola are two stocks in the above list that I would recommend buying.

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.

Coca-Cola is another good company to have in a portfolio. The company gave a good 11% plus return in 2011. Coca-Cola is a high-dividend-yielding company with a consistent growth rate and stable business. It is a good defensive pick for the current uncertain environment. Its stock price has corrected in the past few months as investors have moved to "risk-on" mode. However, I would recommend long-term investors utilize this recent underperformance as a buying opportunity in this quality company.

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