Eaton Vance's Top Buys: 3 Potential Longs, 1 To Avoid

Includes: AON, APC, BA, C, CVX, DE, HPQ
by: Rash Menaria

Eaton Vance Corp. (NYSE:EV) is one of the oldest investment management firms in the United States. It manages ~$ 175 billion in assets and offers wealth management services to both individuals and institutions. The following is a list of its top buys in the December quarter according to the company's latest 13F filing with the SEC.



Shares Held as on 09/30/2011

Shares Held as on 12/31/2011

Change in shares

Anadarko Petroleum Corporation





Aon Corporation





Boeing Co.





Chevron Corp.





Citigroup Inc.





Deere & Company





Hewlett-Packard Company





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I like Boeing, Citigroup and Chevron the most among the above stocks. One stock which I will recommend avoiding from the above stocks is Hewlett-Packard Company.

Boeing Co. is the world's leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined. It operates in the following segments: Commercial Airplanes, Boeing Defense, Space & Security (BDS), and Boeing Capital Corporation, which provides financial solutions facilitating sale and delivery of Boeing commercial and military aircraft, satellites, and launch vehicles.

Recently, BA reported impressive Q4 results with EPS of $1.32 comfortably beating the consensus estimates of $1.01. This performance was driven by strong sales in its Commercial segment and better margins from the Defense business. Balance sheet looks stable with debt remaining flat and free cash flow at $2.3 billion looks strong.

Looking forward, I believe Boeing has considerable upside potential due to strong volume growth visibility based on commercial airplane backlogs and production rates. Management spoke of continued strong demand for commercial aircraft. Healthy order tally along with strong cash flows are expected to drive up share prices in 2012.

Citigroup, Inc. is a global financial services company providing consumers, corporations, governments, and institutions with a range of financial products and services. The company operates through two segments, Citicorp and Citi Holdings.

Last month, Citi reported a weak quarter, missing consensus expectations. Earnings per share was $0.38 against an expectation of $0.49 while expenses rose by 4% and core revenue fell by 7% quarter-quarter. However, this earnings miss was largely driven by the Investment Banking and Securities division. Going forward, things are expected to improve in Q1, with a seasonal rebound in trading, lower expenses, and a likelihood of a dividend increase and buyback announcement in mid-March.

Citigroup is trading at ~50% discount to tangible book value and I believe a lot of negatives are already factored into the stock price. I believe Citigroup can be a good long for aggressive investors with a high risk-high reward appetite. With broader macros improving and a reduction in eurozone uncertainty, I believe the stock can see a significant upside from here.

I also like Chevron Corp. The stock has underperformed since the news on Chevron's Brazilian oil spill last year. Given that the spill is estimated at 2,400 Bbls (well below 0.1% of Macondo), this underperformance clearly is an overreaction by the investors. I find Chevron's stock attractively valued and expect it to outperform going forward.

One company where I don't agree with Eaton Vance is Hewlett Packard. This is a stock that I would recommend selling instead of buying. Hewlett Packard is an American multinational that provides products, technologies, software solutions and services to individual consumers and businesses. Its products include PCs, workstations, printers and scanning devices. In addition it provides consulting, outsourcing and technology services along with enterprise servers and information management solutions.

Recent reads through Canon (NYSE:CAJ) and Lexmark (NYSE:LXK) indicate disappointing trends in the printer market. Revenue slowdown in the U.S. and macro concerns in Europe are likely to continue. Canon's Q4 performance and flat revenue guidance for 2012 could mean additional near-term pressure on HPQ's estimates.

In addition, PCs and servers are also expected to be areas of weakness for HPQ, as indicated by a difficult demand environment during December. Further, investments in R&D and S&M and high interest expense are likely to weigh on its earnings. It is likely that Q1 2012 revenue and earnings could miss the consensus estimates.

With a high exposure to the eurozone, secular declines in printers and PCs and foreign exchange pressures, I believe that HP's stock price could see a decline going forward.

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