Citigroup (C) recently filed its 13F form for the quarter ended Dec 31, 2011, with the SEC. I discussed my analysis of Citigroup's top buys in a previous article. In this article, I would be focusing on its top sells. Here are some of its top sells from the last quarter:
Shares Held - 09/30/2011
Shares Held - 12/31/2011
Change in shares
Johnson Controls Inc.
Kraft Foods Inc.
Philip Morris International Inc.
I am bearish on Johnson's Control going forward and would recommend shorting the stock. I also anticipate a lot of headwinds for Novartis. However, its low valuation keeps me neutral on the stock. I don't agree with Citigroup on US Bancorp, Kraft Foods and Philip Morris and believe they are good buy candidates
Johnson Controls is a $40 billion diversified industrial supplier, world leader in automotive seating and interior components and systems. It is also the largest North American automotive battery supplier and leading supplier of control systems and facilities management services.
Last month, Johnson Controls reported 1Q 2012 results slightly below expectations and lowered its guidance for the current quarter. The guidance reduction was attributed to weak performance from Automotive Experience, lower Building Efficiency segment sales and foreign exchange headwinds.
Going forward, supply issues from Japanese vehicle manufacturers, higher than expected AE start-up costs and R&D costs are expected to affect margins. With weak aftermarket battery shipments, shutdown of Shanghai plant, soft demand in residential HVAC and lowered European industrial vehicle production, near-term margin recovery is unlikely. The company is trading at a premium to its peers. I don't think JCI warrants a premium given the string of company-specific operational issues including poor execution. I recommend a sell on the stock.
Novartis AG is a multinational company specializing in the research, development, manufacturing and marketing of a range of healthcare products led by pharmaceuticals. The company is facing a host of issues. Its drug Gilenya is undergoing safety review in Europe and the U.S. in relation to 11 deaths of potential interest in patients who had been receiving treatment for multiple sclerosis with the oral drug Gilenya. Gilenya accounts for $800mn sales annually. Novartis' another drug Sandoz, which had been the sole generic competitor to Sanofi's Lovenox in the market, is likely to see competition from Watson Pharmaceutical (WPI). Watson recently announced that it had won its appeal of the preliminary injunction preventing it from launching its generic version of Sanofi's Lovenox in the US. It intends to launch the product immediately. Sandoz generated FY11 sales of $1bn and it may lose half of its shares from Watson's drug.
However, most of the negatives are already discounted in Novartis' share price. The company is trading at a 21% discount to its peer group versus 1% discount it has historically traded. I have a neutral rating on the stock.
U.S. Bancorp, a financial services holding company, provides various banking and financial services in the United States. It generates various deposit products and originates a portfolio of loans. It also offers treasury management, capital markets, foreign exchange, and international trade services to middle market, large corporate, commercial real estate, and public sector clients.
USB continues to post superior results despite margin compression and interchange regulation. Fundamentally, it has outperformed its peers in terms of revenue growth, operating efficiency and returns to its shareholders. Most of its operating metrics were positive last quarter with strong core loans growth and deposits growth and reduced Non Performing Loans. Capital Ratios improved under Basel 1 and Basel 3.
Going forward, USB is expected to continue to outperform driven by steady revenue growth from credit and debit card fees, corporate payment products and merchant processing services. USB seems to be gaining market share in mortgage business with originations up by 50 % quarter-quarter in the last quarter.
I believe the company is well positioned in the current environment due to lower impact from the financial reform bill and is set for an above average growth from its favourable business mix. With strong revenue growth from non volatile sources, USB is expected to significantly increase its dividends making it attractive for income oriented investors. Given its low risk model and higher dependence on non-interest rate sensitive revenue, it is a relatively defensive stock and a must have.
Kraft is the largest U.S. food manufacturer, and second-largest in the world, behind Nestle (OTCPK:NSRGY). I am bullish on Kraft because of its international growth potential and value creation from the planned spin-off.
Kraft is seeing significant growth in international markets, and in the third quarter, developing markets contributed around 66% of incremental year/year segment profits, and international contributed 86%. In the near future, I expect it will continue to enable Kraft to derive faster-than-average peer growth. It will also improve Kraft's debt ratio, enabling it to return more cash to its shareholders in the future.
Another major catalyst for Kraft's stock is its planned split into two companies. Kraft's business consists of its high-growth snacks business and the stable return grocery business. Kraft is planning to split up these two businesses in FY12. This will unlock significant value by highlighting an above peer growth profile of the global snacks business, driving operational improvements, and by allowing each company to pursue different capital allocation priorities.
Kraft is trading at 15x FY12 EPS, which is at discount to its average 10-year historical PE multiple of 16x. I believe this is a good opportunity to initiate a long position in the company.
Philip Morris is engaged in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States of America. Trading at 15x forward PE and with around a 4% dividend yield, Philip Morris appears to be an interesting defensive buy with a stable business model.