Analyzing Aberdeen Asset's Q4 Activities

 |  Includes: CSCO, FMX, JPM, PEP, STT, TJX
by: Rash Menaria

Aberdeen Asset Management plc is an international investment management group, managing ~$50 billion in assets. It caters to both institutions and private investors. The following is a list of Aberdeen's top buys in the December quarter as released in their most recent 13F filing with the SEC.

Top Buys



Shares Held as on 09/30/2011

Shares Held as on 12/31/2011

Change in shares

Banco Santander-Chile ADS





Comcast Corporation





Fomento Economico Mexicano S.A.





Pepsico Inc.





Petroleo Brasileiro





Tenaris S.A.





The TJX Companies, Inc.





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I would recommend buying Fomento Economico Mexicano S.A. and The TJX Companies Inc. from the above list. However, one stock in the above list which I would recommend avoiding is Pepsico Inc.

Formento Economico Mexicano S.A. is the largest beverage company in Mexico and Latin America. It produces, markets and distributes Coca Cola (NYSE:KO) trademark beverages including sparkling beverages, bottled water, still beverages such as bottled juice, ready-to-drink tea and isotonics. It also operates a chain of convenience stores under the OXXO name.

FMX is the second largest bottler of Coca-Cola and with acquisitions of other Mexican bottlers and consolidation of its operations; I believe there is considerable room for margin expansion in 2012. FMX's other franchisee OXXO is a valuable high growth asset. It operates about 9000 stores in Mexico and has a market share of less than 5% of Mexico's food and convenience retail market. Being positioned as a modernizer of retail, it is expected to replace the conventional stores and capture a bigger share of the organized retail in the medium term with no competition. With superior cash flow generation over its peers, OXXO has already extended its footprint into Columbia and planning to expand into Brazil, which I see as a positive.

TJX Companies, Inc. is the leading off-price apparel and home fashion retailer in the United States with a significant international presence. The company's U.S. brands include T.J. Maxx, Marshalls, Homegoods, and A.J. Wright. The company's Canadian brands include Winners and HomeSense. And the company's European brands include T.K. Maxx and HomeSense.

Recently, TJX reported a better than expected January sales. Overall sales increased by 7% against a consensus of 3.3% with all divisions posting a positive increase in sales. Further, TJX raised guidance for 4Q 2011. With European and Canadian businesses also posting a strong sales increase, the trends in 2012 are expected to be favourable.

TJX remains committed to returning cash to the shareholders with a share repurchase of $1.2 billion underway. Valuation too remains attractive with current levels (14x -15x) in-line with its peers. Based on TJX's continued market share gains; position as the industry leader with well diversified store base and merchandise mix; and its strategy to run with lean inventory, I believe it warrants a premium over its peers.

PepsiCo, Inc. is a global food, snack and beverage company. Pepsi's slowing growth and market shares losses against its key rival Coca Cola makes it a risky stock.

Pepsi recently announced some restructuring measures like reducing 3% of the global work force; raising advertising and marketing expenses by $500 million to $600 million in 2012 on its iconic brands; and spending $100mn to improve its delivery and display racks.

However, I don't feel this is enough to reverse the trend. When Coca-Cola faced similar problems in the past, it took it around 5 years of disciplined focus on brand building, innovation, bottler re-investment to improve trends. Clearly, it is not going to be an easy ride for Pepsi either.

In addition to above listed buys, it is also interesting to have a look at the top stocks where Aberdeen is booking profit and selling its holdings. The following is a list of Aberdeen's top sells in December quarter as released in their most recent 13F filing with SEC.

Top Sells



Shares Held as on 09/30/2011

Shares Held as on 12/31/2011

Change in shares

Tidewater Inc.





Cisco Systems Inc.





JPMorgan Chase & Co.





State Street Corp.





Emerson Electric Co.





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My favorite short candidate in the above list is State Street Corporation. However, there are two stocks in the above list where I don't agree with Aberdeen and would recommend buying. They are Cisco and JP Morgan.

State Street Corporation is a U.S. based financial services holding company. It provides various financial services including securities services to institutional investors as a custodian bank and investment management services to mutual funds and other fund managers.

STT reported weak 4Q results with operating EPS of $0.83, well below consensus estimates of $0.93. Due to weak markets and lag effect from previous quarters, fee revenues from servicing and asset management declined. Further foreign exchange declined by 27% q-q due to customers shifting to lower margin electronic and direct trading.

STT is currently trading at a premium to its peers such as Bank of New York Mellon (NYSE:BNY). Due to current uncertainty in capital markets and low short term rates, I see little upside potential for Trust and Custody banks in the near term.

Cisco designs, manufactures and sells Internet protocol-based networking and other products related to the communications and information technology industry and provide services associated with these products and their use. Recently the company delivered an impressive fiscal Q2 2012 results. Although its guidance for flat FQ3 revenue was below what some investors expected, I believe it has more to do with conservatism on the part of management rather than any actual slowdown in the business.

The company is seeing strength in its business and it can easily do better than its guidance for FQ3. In the long term, I expect Cisco to continue posting strong result helped by product cycle momentum in 10GE datacentre, LTE and video. Trading at 10x forward earning, with a 9% FCF yield, stock repurchases, and a 1.6% dividend yield Cisco appears to be an attractive investment opportunity.

JPMorgan Chase is a stable bank with strong capital position, business mix diversity and good dividend yield. Since 2004 JPM has strengthened its risk controls and business rationale. This has enabled it to post solid growth and excellent relative navigation of credit crunch. Going forward, the company continues to invest in growing its global franchise in spite of regulatory challenges. In addition to its global growth, there is a good scope for it to gain share from competitors with relatively weaker balance sheet.

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