Eaton Vance Is Decreasing These Positions

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 |  Includes: ACN, APA, BEN, CHTR, COP, HES, ITW, MCD, PNC, WFC
by: Rash Menaria

Eaton Vance Corp. (NYSE:EV) is one of the oldest investment management firms in the United States. It manages around $175 billion in assets and offers wealth management services to both individuals and institutions.

I discussed Eaton Vance's Top Buys in a previous article. In addition to buys, it is also interesting to have a look at the top stocks where Eaton Vance is booking profit and selling its holdings. The following is a list of its top sells in the December quarter according to their latest 13F filing with the SEC.

Stock

Symbol

Shares Held as on 09/30/2011

Shares Held as on 12/31/2011

Change in shares

Hess Corporation

HES

6,038,609

3,266,796

-2,771,813

Franklin Resources Inc.

BEN

2,614,074

786,586

-1,827,488

Time Warner Cable Inc.

TWC

3,227,320

357,094

-2,870,226

Wells Fargo & Company

WFC

37,313,752

30,438,573

-6,875,179

PNC Financial Services Group

PNC

11,811,613

8,079,823

-3,731,790

ConocoPhillips

COP

11,998,195

8,809,400

-3,188,795

Accenture plc.

ACN

10,629,746

6,248,789

-4,380,957

Apache Corp.

APA

7,167,181

4,124,568

-3,042,613

McDonald's Corp.

MCD

7,497,813

4,197,338

-3,300,475

Illinois Tool Works Inc.

ITW

9,326,613

1,494,236

-7,832,377

Click to enlarge

Among above stocks, I see a downside risk in McDonalds, and recommend investors to book profit in it. Two stocks where I don't agree with Eaton Vance and believe they are a buy instead of sell are Accenture and Wells Fargo.

McDonald's is the largest fast food restaurant chain by revenues. It operates in 120 countries with about 81% of its units operating as independent franchisees. It derives about half of its revenues from the US, one third from Europe and remaining from APMEA regions.

Although McDonald's posted strong Q4 results driven by same-stores sales growth and franchised margin expansion, things may become a bit more difficult in 2012 as the macroeconomic forces are likely to be less supportive. Cost outlook for 1H 2012 looks challenging with food inflation trending above 4.5-5.5% in Europe. Strong negative FX pressure is also expected because of weakening euro and other currencies. Both these factors are expected to add to margin compression in the near term. Other factors affecting the bottom line includes G&A expense which is expected to be up by 6% due to the Olympics and technology investments.

In addition to these headwinds, McDonald's PE multiple at 16x is almost near its post-recovery high and I see a little chance of any appreciation from here.

Accenture is gaining market share in the IT industry due to its strong domain expertise, industry-leading technical and consulting capabilities, and strong onsite presence. Clients continue to focus on vendor consolidation and are building strategic vendor relationships with IT services firms that have a wide breadth of offerings. ACN with its presence across industry verticals and service lines is well placed to increase its share especially in the key accounts. Going forward three specific technologies: mobility, cloud and analytics are likely to cause a good upside in the business. Each of these technologies has potential to become billion-dollar businesses, and Accenture is well positioned to capitalize on these trends as the largest agnostic technology solutions provider in the world.

Wells Fargo and Company provides retail, commercial and corporate banking services primarily in the United States. It operates in three segments; Community Banking, Wholesale Baking and Wealth, Brokerage and Retirement.

WFC reported fourth-quarter EPS of $0.73 against the market consensus of $0.72. Revenue of $20.1 billion improved 6% quarter-quarter driven by mortgage results and the spread income fee. Net Interest Income was also better than expected and the loan growth was positive. A combination of lower funding costs and an increase in non-interest bearing deposits has resulted in better interest margins.

WFC remains one of the safest large-cap banking stocks with a relatively strong balance sheet. Its business fundamentals are going in the right direction with improved core loan growth and healthy deposits growth. WFC's asset quality is stable and NPAs reduced by $879 million last quarter. Its capital ratios also continue to improve: Tier 1 common ratio at the end of Q4 was 7.49% under Basel III standards, up by 9bp quarter-quarter, while under Basel I it was 9.46%, up by 12bp quarter-quarter.

WFC has also entered into an agreement to buy back 5.6 million shares in Q1 2012. While high operating expenses are a concern, the management reiterated that expense improvement is expected to occur in 2012. I recommend going long on the stock from a medium- to long-term perspective.

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