San Francisco, California-based RS Investment Management, with $10.5 billion in 13-F assets at the end of Q4, offers mutual funds as well as separate client-focused equity and fixed income portfolios for its Institutional client base, including pension and profit sharing plans, endowments and high net worth individuals. The firm pursues a team-based approach in conducting its research and making investment management decisions, including investment teams in the areas of value, core growth, growth, international, natural resources and fixed income.
This team-based approach seems to have paid off very well for RS Investment Management as the firm has attained market-beating double digit returns in the last 10 years. Their largest $3.5 billion RS Global Natural Resources Fund has generated 14.8% average annual returns versus 3.96% for the S&P 500. RS Investment's 13-F portfolio is over-weight basic materials, and a third of its assets are invested in large-caps, another 50% in mid-caps and the remaining 15%-20% is invested in small-cap equities.
We analyzed RS Investment's equity holdings in its Q4 13-F to determine its highest conviction bets, 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 positions, that are also trading at a discount to the peers in their group (see Table):
Talisman Energy (NYSE:TLM): TLM is a Canadian company engaged in oil, natural gas liquids and natural gas exploration and production internationally. RS Investment added $191 million, its largest buy in Q4, to its $96 million prior quarter position. Other major institutional investors with large bullish bets on TLM in Q4 include Wellington Management adding 8.1 million shares to its 4.5 million share prior quarter position, and Atlanta-based investment powerhouse INVESCO adding 4.4 million shares to its 10.5 million share prior quarter position. TLM shares have been almost slashed in half from its $25 highs about a year ago, and it trades at 10-11 forward P/E and 1.4 P/B compared to averages of 19.3 and 1.5 for its peers in the Canadian oil & gas exploration & production group.
BHP Billiton Ltd ADR (NYSE:BHP): BHP Billiton is an Australian company engaged in the mining of base metals, iron ore, oil, gas, diamonds, and coals. RS Investment added $52 million in Q4 to its $91 million prior quarter position. Other major institutional investors with large bullish bets on BHP in Q4 include basic materials-focused CQS Cayman that added a new 1.5 million share position, and Bank of America that added a new 1.4 million share 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.
Vale SA (NYSE:VALE): Rio De Janeiro, Brazil-based VALE is one of the world's leading mining companies, and specializes in the mining of iron ore and pellets, manganese, alloys, gold, copper, potassium, and kaolin. RS Investment added $34 million in Q4 to its $45 million prior quarter position. Other major institutional investors with large bullish bets on VALE in Q4 include Edinburgh-based esteemed investment management firm Baillie Gifford & Co. adding 4.2 million shares to its 20.3 million share prior quarter position, and Royal Bank of Canada adding 2.6 million shares to its 2.8 million share prior quarter position. VALE is undervalued, trading at 6.1 forward P/E and 1.5 P/B compared to averages of 20.9 and 2.2 for its peers in the miscellaneous mining group, while earnings are projected to fall from $4.23 in 2011 to $3.82 in 2013.
Other high conviction buys by RS Investment in Q4 include (see Table):
- Goldcorp Inc. (NYSE:GG), a Canadian company engaged in mining and exploration of silver, copper and gold throughout North and South America, in which it added $135 million to its $63 million prior quarter position; and
- Schwab Charles Corp. (NYSE:SCHW), a provider of brokerage, banking and financial services to individual and institutional clients, in which it added a new $35 million prior quarter position.
The following are RS Investment's high conviction bearish picks based on their Q4 selling activity (see Table):
- Canadian Natural Resources Ltd. (NYSE:CNQ), engaged in oil & gas exploration & production activities in Western Canada, the North Sea and offshore in West Africa, in which it cut out completely its $111 million prior quarter position;
- Activision Blizzard Inc. (NASDAQ:ATVI), a publisher of interactive entertainment software and peripheral products for consoles, hand-held devices and PCs, in which it cut $90 million from its $182 million prior quarter position;
- Regions Financial Corp. (NYSE:RF), 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, in which it cut out completely its $65 million prior quarter position;
- Urban Outfitters, Inc. (NASDAQ:URBN), an operator of specialty retail stores, and also engaged in the wholesale apparel business, in which it cut out completely its $52 million prior quarter position;
- Potash Corporation of Saskatchewan, Inc. (NYSE:POT), the world's largest integrated fertilizer and related industrial and feed products company by capacity, in which it cut out completely its $30 million prior quarter position; and
- Agnico Eagle Mines Ltd. (NYSE:AEM), a Canadian company engaged in the production, development and exploration of gold in Canada, U.S., Finland and Mexico., in which it cut out completely its $23 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.
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.