Boston-based Wellington Management with over $634 billion in client assets under management, including $254 billion in 13-F assets at the time of its Q4 filing, is one of the largest private, independent investment management companies in the world. Established in 1928 by Walter L. Morgan, a Philadelphia-based accounted who also established the first balanced mutual fund in the U.S., the firm today has over 1,900 institutional clients in over 50 countries, with offices worldwide in London, Singapore, Tokyo, Sydney, Hong Kong and Beijing.
We analyzed Wellington Management's Q4 13-F to determine its highest conviction bets (see Table), selecting the largest buys and sells in size, where the buy/sell is also a significant proportion of its prior quarter position in that company. Based on that analysis, the following are its high conviction bullish bets in Q4 that are also trading at a discount compared to their peers (see Table):
Lowe's Companies Inc. (LOW): LOW operates as a home improvement retailer operating 1,749 stores in the U.S., Canada and Mexico. Wellington added $713 million in Q4, its largest high conviction buy, to its $1.27 billion prior quarter position. Besides Wellington, other major institutions that also added significantly to their LOW position in Q4 included Fidelity Investments, that added 18.3 million shares to its 21.7 million share prior quarter position, and Citadel Advisors, that added 3.1 million shares to its 0.2 million share prior quarter position.
LOW reported a strong Q4 last week, beating analyst earnings (29c v/s 23c) and revenue estimates, and guiding FY EPS in-line. Its shares, up more than 50% in the last six months, are currently taking a breather, consolidating near its long-term highs in the $27-$28 range. The strong rally is backed by strong earnings growth in the mid-double-digits the last three quarters, a stabilization and possible recovery in the housing market going forward, and a slow but gradual improvement in the economy.
Also, recently, after the Q4 report, Morgan Stanley and Credit Suisse have come out in support of the stock. Even after the strong rally, the stock still trades at a reasonable 12-13 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 14.2% compound growth rate from $1.67 in 2012 to $2.18 in 2013.
Gilead Sciences Inc. (GILD): Gilead is a developer of therapeutics to treat viral, fungal, respiratory and cardiovascular diseases. Wellington added $549 million in Q4 to its $738 million prior quarter position. Besides Wellington, other major institutions that significantly added to their position in Q4 included healthcare-focused hedge fund Visium Asset Management, that added 4.0 million shares to its 0.1 million share prior quarter position, and SAC Capital Advisors that added 3.908 million shares to its 0.005 million share prior quarter position.
GILD shares have been extremely volatile in the last five weeks, in what amounted to a market-cap gain of $5 billion in the early part of February on new preliminary data on its lead hepatitis C drug that were encouraging, followed by a massive near $8 billion market-cap loss when it announced that six of eight patients for which data was available experienced viral relapse within four weeks of completing the hepatitis C treatment. Its shares currently trade at a discount 10-11 forward P/E and 4.9 P/B, compared to averages of 22.2 and 11.3 for its peers in the biotech group.
Regions Financial Corp. (RF): RF is a holding company for Regions Bank that provides a range of commercial, retail and mortgage banking services in the U.S. via 1,772 offices in 16 states in the South and the Midwest. Wellington added a new $327 million position in Q4, its largest high conviction new position in the quarter. Besides Wellington, other major institutions that also added significantly to their RF position in Q4 included Citadel Advisors, that added 6.2 million shares to its 0.8 million share prior quarter position, and Renaissance Technologies, that added a new 4.9 million share position.
RF reported a strong Q4 last month, beating earnings estimates (9c v/s 7c); the stock has been in a strong and steady uptrend this year, rising about 40% YTD. A number of brokers including RBC Capital Markets and Credit Suisse have upgraded the stock recently, raising their price targets. Its shares currently trade at 8-9 forward P/E and 0.6 P/B compared to averages of 13.2 and 0.6 for its peers in the southeast regional banks group.
Other high conviction buys by Wellington Management in Q4 include (see Table):
- Sirius XM Radio (SIRI), a provider of satellite radio services in the U.S. and Canada via approximately 135 channels of commercial-free music, sports, news, talk, traffic and weather on a subscription basis, in which it added $185 million to its $270 million prior quarter position;
- homebuilder Pulte Group Inc. (PHM), in which it added $159 million to its $124 million prior quarter position;
- Activision Blizzard Inc. (ATVI), a publisher of interactive entertainment software and peripheral products for consoles, hand-held devices and PCs, in which it added $159 million to its $231 million prior quarter position;
- Encana Corp. (ECA), engaged in oil and gas exploration and production in British Columbia, Alberta, Offshore Nova Scotia, WY, CO, LA and TX, in which it added $127 million to its $366 million prior quarter position;
- Huntington Bancshares Inc. (HBAN), that operates as the holding company for the Huntington National Bank that provides commercial and consumer banking services via 611 offices in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, Kentucky and Florida, in which it added $114 million to its $136 million prior quarter position; and
- Boston Scientific Corp. (BSX), a developer of medical devices used in cardiology, endoscopy, oncology, neuromodulation and other interventional procedures, in which it added $74 million to its $200 million prior quarter position.
The following are Wellington's high conviction bearish picks based on their Q4 selling activity (see Table):
- Polycom Inc. (PLCM), a developer of communication products that enable unified video, voice and content collaboration for enterprise, government, education and healthcare customers, in which it cut $165 million from its $229 million prior quarter position;
- Potash Corporation of Saskatchewan, Inc. (POT), the world's largest integrated fertilizer and related industrial and feed products company by capacity, in which it cut $93 million from its $285 million prior quarter position;
- Textron Inc. (TXT), a global conglomerate that operates in multiple industries, including aerospace, defense, industrial products and finance, and perhaps best known for its aerospace products including the Bell Helicopter and Cessna Aircraft, in which it cut out completely its $92 million prior quarter position; and
- MetroPCS Communications Inc. (PCS), a wireless telecommunications carrier, offering wireless broadband mobile services in the United States, in which it cut $85 million from its $103 million prior quarter position.
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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.