New York-based multinational banking corporation JPMorgan Chase & Co. (JPM) is the largest bank in the U.S. by assets and market capitalization. Its hedge fund unit ranks among the largest hedge funds, and it has a total of $1.3 trillion in assets under management, including over $217 billion in 13-F assets per its latest Q4 filing on Friday. Its assets are well-diversified into over 3,700 positions, with over three-quarters deployed in large-caps, another 15%-20% in mid-caps, and the rest 5%-10% in small-cap equities.
With such a well-diversified portfolio, it is understandable that it holds a position in most large-cap U.S. traded equities; hence, looking at just its holdings, or even its largest dollar moves, would not be that useful. We focused instead on relatively large positions in which it added a significant percentage to its prior quarter position or where it similarly significantly cut a prior quarter position.
The following are JPMorgan's major buys in Q4 based on that analysis, that are also trading under-valued compared to the peers in their group (see Table):
Lowes Companies Inc. (LOW): LOW operates as a home improvement retailer operating 1,749 stores in the U.S., Canada and Mexico. JPMorgan added $150 million in Q4 to its $474 million prior quarter position. LOW shares have staged a strong rally over the last six months, rising over 50% from the lows last fall, on the back of strong earnings growth in the mid-double-digits the last two quarters, a stabilization and possible recovery in the housing market going forward, and a slow but gradual improvement in the economy. The stock is trading at near four year highs, at 15-16 forward P/E and 2.1 P/B compared to averages of 17.2 and 2.6 for its peers in the building products retail/ wholesale group, while earnings are projected to rise at a 11.1% compound growth rate from $1.45 in 2011 to $1.79 in 2012.
TripAdvisor Inc. (TRIP): TRIP is an online travel research company, aggregating reviews and opinions of members about destinations and accommodations such as hotels, resorts, restaurants, vacation packages and travel guides. JPMorgan added a new $61 million position in Q4. TRIP shares have lost more than 20% of their valuation, plunging at the end of last week after a disappointing Q4 in which the company missed earnings and projected tepid FY revenue growth, prompting a number of brokers to downgrade the company and lower their price targets. TRIP was spun-off from online travel services company Expedia just under two months ago, and currently it trades at 16-17 forward P/E compared to the average of 26.1 for its peers in the internet content group.
International Paper Co. (IP): IP is a paper and packaging company with worldwide operations, manufacturing containerboards, printing and writing papers, market pulp, and coated paperboard. JPMorgan added $68 million in Q4 to its $23 million prior quarter position. IP reported its Q4 just under two weeks ago, beating earnings (66c v/s 61c) but missing on revenues ($6.37 billion v/s $6.52 billion); its shares trade near four-year highs, at 9-10 forward P/E and 2.2 P/B compared to averages of 10.6 and 4.0 for its peers in the paper & related products group.
Freeport McMoRan Copper & Gold (FCX): Freeport McMoRan is engaged in the exploration and development of copper, gold, silver and molybdenum mines in Indonesia, North and South America. JPMorgan added $578 million in Q4 to its $498 million prior quarter position. FCX trades at 7-8 forward P/E and 2.7 P/B compared to averages of 19.5 and 2.3 for its peers in the non-ferrous mining group, while earnings are projected to rise at a modest 6.0% annual rate from $4.89 in 2011 to $5.49 in 2013.
Other major buys by JPMorgan in Q4 that are not under-valued based on a comparison to their peers, at least based on the typical earnings measure, include:
- Petroleo Brasileiro SA (PBR), a Brazilian company engaged in the exploration, production, supply and distribution of oil and gas in Brazil and abroad, in which it added $99 million to its $180 million prior quarter position;
- DR Horton Inc. (DHI), a builder of single-family detached, as well as attached homes, such as town homes, duplexes, triplexes and condominiums, for first-time and move-up home buyers in 26 states and 72 metropolitan markets, in which it added $77 million to its $7 million prior quarter position;
- SunTrust Banks Inc. (STI), a holding company for SunTrust Bank, which provides traditional deposit and credit services as well as trust and investment services via 1,668 offices in Alabama, Arkansas, Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, West Virginia and Washington, D.C., in which it added $84 million to its $221 million prior quarter position; and
- Teva Pharmaceutical (TEVA), an Israeli developer of generic and branded drugs and active pharmaceutical ingredients, in which it added $82 million to its $349 million prior quarter position.
Other select stocks that JPMorgan is bearish on based on its moves in Q4 (see Table) include:
- Marathon Petroleum (MPC), engaged in the refining, transporting and marketing of petroleum products, and operating six refineries in the Gulf Coast and Midwest regions that refine crude oil and other feedstocks, and distribute the refined products through barges, terminals and trucks, in which it cut $90 million from its $198 million prior quarter position;
- Calpine Corp. (CPN): CPN develops and operates natural-gas fired combustion turbine and geothermal power plants in the U.S. and Canada, in which it cut $79 million from its $84 million prior quarter position;
- Dendreon Corp. (DNDN), a developer of targeted therapeutics to treat cancer using active immunotherapies, monoclonal antibodies and small molecules, and probably best known as the maker of Provenge® for Prostate Cancer, in which it cut $66 million from its $81 million prior quarter position; and
- Kinross Gold Corp. (KGC), engaged in mining and processing gold, silver, and copper in the U.S., Brazil, Ecuador, Chile and Russia, in which it cut $51 million from its $235 million prior quarter position.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.