Fidelity Management & Research Company is an investment management subsidiary of FMR LLC founded by Edward C. Johnson, III in 1946. The firm has offices in United States, Canada, Hong Kong and London. The firm caters to investment companies and institutional clients and manages over $600 billion in equity assets primarily following Growth at Reasonable Price (GARP) investment style.
Investment Strategy: Fidelity Management & Research Company is an active, global investor that offers a wide range of strategies, including growth, blend, high yield, indexing, and value. The investment process is bottom-up driven, primarily utilizing fundamental analysis in identifying favorable investments. The firm manages domestic and international portfolios, typically covering the U.S., Canada, Japan, Hong Kong, Europe and global emerging markets.
In this article, I will be discussing some of the top buys from Fidelity, as released in its most recent (filed on 02/14/2012) 13F filing with SEC.
McDonald's Corporation (MCD): My Take - Buy
Fidelity purchased 8,975,028 shares of McDonald's last quarter. McDonald's Corp. and its franchisees and affiliates operate approximately 33,000 quick service restaurants that generate over $70 billion in annual system-wide sales. Roughly 43% of sales are generated domestically (US), with Europe (30% of revenue) and APMEA (19% of revenue) as the next largest markets. McDonald's has a scale and pricing power that few others possess in a rising cost environment.
In the US, the company plans to remodel 800 units in 2012, on top of the 600+ in 2011 while maintaining its strength in value positioning (particularly relative to food at home pricing, which has risen sharply, while McDonald's has taken up price more modestly). This, combined with operational focus on increasing peak throughput (dual drive-throughs, new POSs), will have a positive impact on its US business.
In Europe, the structural gap between McDonald's and peers is quite wide, and I believe high/low menu innovation and 950 remodels (vs. 1000 in FY11) should continue to strengthen company's presence in market space. The company expects 90% of its interiors and two-thirds of its exteriors to be re-imaged in Europe by the end of 2012, up from 75% and 40% today, respectively. In APMEA, value breakfast/lunch continue to resonate with consumers, especially in China, where focus remains for unit development including 225-250 for 2012, and an implied acceleration to 300+ in 2013, as the company targets 2,000 units by 2013 from 1,400 today.
Going forward, McDonald's is likely to continue driving solid same-store sales through the combination of pricing, product innovation, remodels and compelling value offerings. McDonald's has a long-established history of annual dividend increases. The business is performing well across the globe, and the company's competitive position is getting stronger as it gains share. Earnings visibility remains above average, with potential upside as McDonald's gets more aggressive taking price. I believe it makes sense to buy the stock given the company's sales leadership position, market share gains and earnings visibility.
Wal-Mart Stores, Inc. (WMT): My Take - Buy
Fidelity purchased 13,088,904 shares of Wal-Mart last quarter. Wal-Mart Stores, Inc. is the largest retailer in the world, with approximately 3,700 Wal-Mart stores and 600 Sam's Club stores in the U.S. and about 4,000 international stores. The Wal-Mart segment consists of Supercenters, Discount Stores and Neighborhood Markets. Sam's Club stores are membership warehouse clubs that primarily target small business owners.
Wal-Mart's earnings profile remains strong based on its leading position as the world's largest retailer, its resistance to economic downturns and a record of consistent growth. It continues to respond to a generally challenging consumer environment through its Everyday Low Pricing strategy.
Going forward, Wal-Mart's earnings potential is expected to be stable driven by its international growth, continued store format conversion in the U.S. and improving geographic diversification. As the inflationary and economic environment improves, Wal-Mart is expected to moderate its discounting and promotional measures pushing up the margins. With expected increase in dividends and share buybacks, I believe it is a good time to buy WMT.
Motorola Solutions, Inc. (MSI): My Take - Sell
Fidelity purchased 8,482,336 shares of Motorola Solutions last quarter. Motorola Solutions, Inc. provides mission-critical communication products and services for enterprise and government customers worldwide. The company's portfolio includes products such as two-way radios, bar code scanners, radio frequency identification readers, mobile computing devices, wireless broadband networks and wireless local area network products.
I am not too bullish on Motorola Solutions, Inc. In the near term I am concerned about the potential impact of government spending cuts, as Motorola generates about 65% of its sales in its Government segment, and the federal government represents 8% of revenue. Also, most of its enterprise sales are in the retail, transportation and logistics industries. Any downturn in retail sales due to macroeconomic concerns could lead to reduced purchases of Motorola barcode readers and mobile computing products.
Groupon Inc. (GRPN): My Take - Sell
Fidelity purchased 23,613,036 shares of Groupon last quarter. Groupon is facing a stiff competition and burning significant amounts of cash. The business has relatively low barriers to entry, and at a market cap of $11 billion, investors are clearly pricing in too many positive expectations for a company that is hardly making any profits.
SanDisk Corporation (SNDK): My Take - Sell
Fidelity purchased 5,385,691 shares of SanDisk last quarter. SanDisk is engaged in designing, developing and manufacturing data storage solutions in a range of form factors using the flash memory, controller and firmware technologies. The Company operates a flash memory storage products segment. Most of its products are manufactured by combining NAND flash memory with a controller chip. The company's solutions include removable cards, embedded products, universal serial bus drives, digital media players, wafers and components.
Sandisk's stock price has gained 45% from its August 2011 lows. I don't think it's a good time to invest as the stock is almost near its 52 week high. Furthermore, the recent departure of the company's CTO Yoram Cedar, who was well perceived within the investor community, is a negative for the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.