JPMorgan Chase and Co. (JPM) manages ~ $200 bn in equity assets primarily through its asset management subsidiary J.P. Morgan Asset Management. It caters to high net-worth individuals, corporations, pension and profit sharing plans, charitable organizations and institutions.
I discussed JPMorgan's Top Buys in a previous article. In addition, it is also interesting to have a look at the stocks where it is selling its holdings. In this article, I will be analyzing some of the top sells from the last quarter, according to its latest 13F filing.
ConocoPhillips (COP): My Take - Sell
J.P. Morgan sold 2,381,095 shares of ConocoPhillips last quarter. ConocoPhillips is an integrated energy company. The company operates three segments: Exploration and Production, Midstream Services, and Refining and Marketing business. In July 2011, COP announced its intent to separate its upstream and downstream businesses. The spin-off is expected to be completed by Q2 2012. COP's PE multiple has expanded over the last few quarters in anticipation of the spin-off. I don't see any further chances of multiple appreciation from these levels.
In fact, once the spin-off is completed, there could be downside in the stock prices of individual entities, as COP shifts from an integrated energy business to the pure-play E&P business. E&P businesses are usually valued using cash flow multiples. COP's E&P assets seem less attractive than its pure-play peers, with expected long-term growth of 3%-4%, which is well below the large-cap E&P average of 8%-9%. Also, COP's low organic free cash flow is likely to limit its ability for share buybacks after its asset divestiture program is completed, and its dividend might be at risk as well.
Morgan Stanley (MS): My Take - Sell
J.P. Morgan sold 4,080,499 shares of Morgan Stanley last quarter. Morgan Stanley, a financial holding company, provides various financial products and services to corporations, governments, financial institutions, and individuals worldwide. It operates in three segments: Institutional Securities, Global Wealth Management Group, and Asset Management.
Morgan Stanley's stock has risen by 60% since November. I believe a lot of positives such as lower funding costs, expense management and market share gains in brokerage are already priced in. Despite contribution from Retail Brokerage business and management's initiatives to facilitate trading market share growth there is little near-term upside potential in a challenging environment.
Going forward, the company's trading revenue is bound to be low due to the Volcker Rule. Also, wealth management margins are unlikely to rise given the low interest rate environment. Further, U.S. Investment Banks are expected to operate with ongoing regulatory headwinds, reducing the competitiveness against European peers. I would recommend selling the stock after a significant run up it has seen in last couple of months.
Juniper Networks, Inc. (JNPR): My Take - Sell
J.P. Morgan sold 4,226,554 shares of Juniper last quarter. Juniper Networks, Inc. designs, develops, and sells products and services that together provide its customers with network infrastructure that creates responsive and trusted environments for accelerating the deployment of services and applications over a single network.
Juniper's CFO Denholm recently gave a cautious commentary at the Morgan Stanley TMT conference. Juniper's management expected some improvement in the sluggish carrier spending while giving their guidance in January. However, they are seeing no improvement and I believe there is a risk to the management guidance. Also, Juniper's recent commentary in Mobile World Conference suggest that its product cycles will require time. I recommend selling the stock as the company is likely to disappoint investors who are building in hopes of early recovery.
KeyCorp (KEY): My Take - Buy
J.P. Morgan sold 2,992,042 shares of KeyCorp last quarter. KeyCorp operates as a holding company for KeyBank National Association that provides various banking services in the United States. It is based out of Cleveland, Ohio with branch network primarily in the Pac-NW, Mid-West and NE. The company's lending portfolio focuses primarily on C&I (33%), home equity (20%) and commercial mortgage (19%).
KeyCorp reported a good 4Q 2011 results beat driven by lower loan loss provisioning and higher fee income. More positives include strong Commercial and Industrial loan growth, NIM expansion and better than expected interest income. With its Tier 1 Capital Ratio at 11.28%, return of capital in the near term seems likely.
Looking ahead, management guided for a modest NIM improvement in 2012 driven by asset mix shift toward loans and continued cost improvement. While earnings potential in the near term is limited, the major catalyst for the price will be return of capital to the shareholders, which is linked to the CCAR outcome, expected in March. KeyCorp is in a good position going into Comprehensive Capital Analysis and Review and an increase in dividend and share repurchases are highly likely. Further it is one of the cheapest in its group, currently trading at a huge discount to its peers, which makes me bullish on the stock.
The Walt Disney Co. (DIS): My Take - Buy
J.P. Morgan sold 2,476,599 shares of Disney last quarter. The Walt Disney Co. is a diversified media company with five operating segments, including Media (45% of revenue), Theme Parks (28% of revenue), Studio (18% of revenue), Consumer (7% of revenue) and Interactive (2% of revenue). The company has a world-class asset base, including 80% ownership of ESPN, the largest and most profitable cable network, the Disney Channel cable network, the ABC broadcast network, Walt Disney World and Disneyland theme parks, and the Walt Disney Studio.
In my view Disney's combination of superior growth over the next several years along with a stronger secular position creates attractive opportunity. In media space it will be difficult for any distributor to successfully compete without ESPN and Disney's networks. With ~12% annual increase in sports rights payments by ESPN over the last decade, the launching of new networks, and the extension to connected devices, ESPN has and will continue to see robust increases in the near future. In the domestic parks business, although consensus is building in appropriate levels of caution on margin expansion in '12 because of pre-opening costs associated with marketing and training, 2013 onward margins may surprise the street on the upside as new attractions begin to roll off, increasing the parks' incremental margins. Further, the company's expansion in the higher margin cruise business with the launch of Disney Dream and Disney Fantasy is expected to bode well for the investors. In addition to strong domestic trends, international markets continue to be a strong driver of revenue and margin growth for the company. Trading at 11.5x forward earnings, the stock doesn't look pricey and I recommend buying it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.