Boston-based Putnam Investments, with $125 billion in assets under management, including $33 billion in 13-F assets, is one of the oldest mutual fund complexes in the U.S., offering 79 individual mutual funds. The firm was founded in 1937 by George Putnam, who established one of the first balance mutual funds, and has offices today worldwide including in London, Tokyo, Frankfurt, Amsterdam, Sydney, and Singapore. About three quarters of its $33.3 billion in 13-F assets at the end of Q4 are allocated to large-caps, another 20% are in mid-caps, and the remaining 5%-10% are in small-cap equities.
We analyzed Putnam'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 to the peers in their group (see Table):
Valero Energy Corp. (NYSE:VLO): VLO is an independent petroleum refining and marketing company operating through three segments: refining, retail and ethanol. Putnam added $57 million in Q4 to its $18 million prior quarter position. Besides Putnam, other major institutions that added significantly to their VLO position in Q4 include Deutsche Bank that added 2.5 million shares to its 1.1 million share prior quarter position, and Harris Financial, that added 1.8 million shares to its 1.1 million share prior quarter position.
VLO is arguably the most undervalued company in the oil refining & marketing group, trading at a discount 6-7 forward P/E and 0.9 P/B compared to averages of 18.9 and 4.7 for its peers in the group. This even after the recent rally that has lifted shares almost 40% YTD. However, looking at a long-term chart, it is obvious that shares are still sloshing around at the lows, at about 1/3rd the price compared to the highs in 2007, while earnings are up strongly and the stock is approaching multi-year highs in the $30-$31 range. We believe that current fundamentals support the stock to at least approach those multi-year highs.
Marathon Oil Corp. (NYSE:MRO): MRO is a U.S. integrated oil & gas company engaged in worldwide exploration, production, refining, transportation and marketing of crude oil and natural gas. It operates through three segments: Exploration & Production, Oil Sands Mining, and Integrated Gas. Putnam added $139 million in Q4 to its $17 million prior quarter position in the company. Besides Putnam, other major institutions that added significantly to their MRO position in Q4 include Invesco Ltd. that added 1.2 million shares to its 2.4 million share prior quarter position, and Hussman Econometrics, that added a new 1.0 million share position.
MRO shares have been in recovery mode since last October, after a massive sell-off in the prior three months during which shares lost almost half their value; currently, its shares trade at a discount 7-8 forward P/E and 1.3 P/B compared to averages of 8.6 and 1.5 for its peers in the U.S. integrated oil & gas group.
American Capital Agency (NASDAQ:AGNC): AGNC is a mortgage REIT that invests in single-family residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government-sponsored entity, or a U.S. Government agency. Putnam added $20 million in Q4 to its $3 million prior quarter position. Besides Putnam, other major institutions that added AGNC in Q4 included Credit Suisse that added 2.3 million shares to its 0.7 million shares prior quarter position, and Morgan Stanley that added 1.5 million shares to its 1.8 million shares prior quarter position.
AGNC shares have rallied strongly this year, and they trade at a current 6.1 P/E on a TTM basis, and at 1.1 P/B, compared to averages of 7.9 and 1.0 for its peers in the mortgage trust REITs group. Long-term, AGNC has been a stellar outperformer, up about 50% from its IPO in mid-2008; in comparison, the average REIT has been flat during this time period. Overall, AGNC has returned an impressive $937 million in dividends since its IPO in May 2008, and is among a select few that increased its dividend during that tumultuous period.
Other high conviction buys by Putnam in Q4 include (see Table):
- Sara Lee Corp. (SLE), a manufacturer of meats, coffee, teas, household products and baked goods for consumers worldwide, in which it added $70 million to its $1 million prior quarter position;
- Marathon Petroleum (NYSE:MPC), engaged in the refining, transporting and marketing of petroleum products, and operating six refineries in the Gulf Coast and Midwest regions that refine crude oil and other feed-stocks, and distributing the refined products through barges, terminals and trucks, in which it added $47 million to its $43 million prior quarter position;
- United States Steel Corp. (NYSE:X), a U.S. manufacturer of flat-rolled and tubular steel products for the automotive, container, construction and appliance markets, in which it added $21 million to its $7 million prior quarter position;
- Sao Paulo, Brazil-based Itau Unibanco Holding SA (NYSE:ITUB), that provides various commercial, corporate, and investment banking services to individuals, and small and middle-market companies in Brail and internationally via over 4,900 full service branches and customer service outlets worldwide, in which it added $19 million to its $13 million prior quarter position; and
- Sirius XM Radio (NASDAQ: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 $18 million to its $8 million prior quarter position.
The following are Putnam's high conviction bearish picks based on their Q4 selling activity (see Table):
- National Oilwell Varco (NYSE:NOV), engaged in the manufacture and sale of equipment, components and products used in oil and gas drilling and production, it provides oilfield services and supplies, and it distributes products and provides supply chain integration services to the upstream oil and gas industry worldwide, in which it cut $146 million from its $257 million prior quarter position;
- Occidental Petroleum (NYSE:OXY), engaged in the exploration and production of crude oil and gas worldwide, in which it cut $139 million from a $238 million prior quarter position;
- Marvell Technology Group (NASDAQ:MRVL), a leading fabless semiconductor company that designs, develops and markets analog, mixed-signal, digital signal processing, and embedded and stand-alone ARM-based microprocessor IC's, used for high-speed, high-density, digital data storage and broadband digital networking markets, in which it cut out its completely its prior quarter $86 million position;
- basic chemicals company Huntsman Corp. (NYSE:HUN), in which it cut $70 million from its $75 million prior quarter position;
- Corning Inc. (NYSE:GLW), a manufacturer of glass substrates for LCDs, optical fiber and cables for communications and ceramic pollution control products, with Its LCDs used in high-performance displays for TVs and smart phones, including in the venerable iPad, in which Putnam cut $34 million from its $58 million prior quarter position; and
- Elan Plc Adr (NYSE:ELN), an Ireland-based worldwide specialty pharmaceutical company focused on the discovery, development and marketing of therapeutic products and services in neurology, acute care and pain management and on the development and commercialization of products using its extensive range of proprietary drug delivery technologies, in which it cut $22 million from its $75 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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