Charlotte, NC-based Bank of America Corp. is an American multinational banking and financial services corporation, and the second largest bank holding company in the U.S. by assets. Its Global Wealth and Investment Management division ranks among the ten largest U.S. wealth managers, with total assets exceeded $500 billion, including $169 billion in 13-F assets per its latest Q4 filing with the SEC. About 70% of its 13-F assets are invested in large-caps, another 20% in mid-caps, and the remaining 10% is in small-cap equities.
We analyzed Bank of America's equity holdings in its 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):
Rio Tinto Plc (RIO): Rio is a U.K.-based company with global interests in mining. Along with a minor interest in uranium mining, Rio is also engaged in mining for aluminum, borax, copper, gold, iron ore, lead, silver, tin, zinc, titanium, diamonds, talc and zircon. Bank of America added a new $151 million position in Q4. Besides Bank of America, other major institutions that significantly added to their Q4 position in Rio include basic materials-focused Van Eck Associates that added 3.2 million shares to its 0.4 million shares position, and Carlson Capital that added a new 0.4 million share position. Rio trades at a current 6-7 P/E and 2.0 P/B compared to averages of 20.1 and 2.2 for its peers in the miscellaneous mining group.
BHP Billiton Ltd ADR (BHP): BHP Billiton is an Australian company engaged in the mining of base metals, iron ore, oil, gas, diamonds, and coals. Bank of America added a new $101 million position in Q4. Besides Bank of America, other major institutions that significantly added to their Q4 position in BHP include basic materials-focused CQS Cayman that added a new 1.5 million share position, and RS Investment Management, that added 0.7 million shares to its 1.2 million share prior quarter position. BHP trades at 13-14 forward P/E and 3.0 P/B compared averages of 14.2 and 2.0 for its peers in the miscellaneous mining group.
Total SA (TOT): Paris-based Total is an international integrated oil & gas company that operates through three segments: Upstream, downstream and chemicals. The chemicals segment produces rubber, paint, ink, adhesives, and resins. Bank of America added a new $75 million position in Q4. Besides Bank of America, other major institutions that significantly added to their Q4 position in Total include Fidelity Investments, that added 1.0 million shares to its 2.2 million share prior quarter position, and Neuberger Berman Group, that added 0.7 million shares to its 1.0 million share prior quarter position. Total trades at 7-8 forward P/E and 1.4 P/B compared averages of 18.8 and 1.3 for its peers in the international integrated oil & gas group, while earnings growth is projected at a modest 3.6% rate from $6.97 in 2011 to $7.48 in 2013.
Other high conviction buys by Bank of America in Q4 include (see Table):
United Parcel Service (UPS), that delivers packages and documents throughout the U.S. and over 220 other countries, in which it added $256 million to its $880 million prior quarter position;
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 a new $190 million position;
Madrid, Spain-based Telefonica SA (TEF), that provides fixed and mobile telephony services primarily in Spain, the rest of Europe, and Latin America, in which it added a new $71 million position;
CSX Corp. (CSX), that operates a 21,000 mile rail system in 23 states, the District of Columbia and the Canadian provinces of Ontario and Quebec, and also offers services for the transport of intermodal containers and trainers, in which it added $65 million to its $82 million prior quarter position;
Valero Energy Corp. (VLO), an independent petroleum refining and marketing company operating through three segments: refining, retail and ethanol, in which it added $43 million to its $71 million prior quarter position; and
Banco Bradesco SA (BBD), a Brazilian bank providing a range of banking and insurance products services to individuals as well as corporations, and that operates a network of branches, ATMs, and special banking service stations and outlets in Brazil, and it also operates three branches and eight subsidiaries in New York, London, the Cayman Islands, Japan, Hong Kong, Argentina, Mexico, and Luxembourg, in which it added a new $37 million position.
The following are Bank of America's high conviction bearish picks based on its Q4 selling activity (see Table):
Specialty pharmaceutical company Valeant Pharmaceuticals International Inc. (VRX), in which it cut $45 million from its $60 million prior quarter position;
American Eagle Outfitters (AEO), an apparel and accessories retailer that operates over a thousand American Eagle Outfitters, Aerie standalone, and 77Kids stores in the U.S. and Canada, in which it cut $39 million from its $52 million prior quarter position;
St. Jude Medical (STJ), that develops cardiovascular medical devices for cardiac rhythm management, atrial fibrillation, cardiac surgery, cardiology and neuromodulation, in which it cut $31 million from its $62 million prior quarter position; and
Fifth Third Bancorp (FITB), a diversified financial services' holding company, engaged in commercial, retail and trust banking, data processing services, investment advisory services and leasing activities via 1,312 centers in 12 states, in which it cut $23 million from its $56 million prior quarter position.
Table (Click to enlarge)
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.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.