Fidelity Management & Research Company is an investment management subsidiary of FMR LLC. The firm caters to investment companies and institutional clients and manages over $600 billion in equity assets. The firm primarily invests following Growth at Reasonable Price (GARP) approach.
The following is a list of some of the Fidelity's Top Buys from the last quarter, as released in its latest recent 13F filing with SEC.
Shares Bought Last Quarter
JPMorgan Chase & Co.
Wal-Mart Stores, Inc.
The Procter & Gamble Company
I like JP Morgan, Wal-Mart and Abbott among the above stocks as they are available at low valuations and have reasonable growth prospects. However, I would like to avoid McDonald's and Procter & Gamble.
JPMorgan Chase is a stable bank with strong capital position, business mix diversity and good dividend yield. Since 2004, JPM has strengthened its risk controls and business rationale. This has enabled it to post solid growth and excellent relative navigation of the credit crunch. Going forward, the company continues to invest in growing its global franchise in spite of regulatory challenges. In addition to its global growth, there is a good scope for it to gain share from competitors with relatively weaker balance sheets. The company's recent dividend increase shows that it is in a strong position to return capital to the shareholders. I will recommend buying it as it is one of the safest bets in the large cap banking space.
Wal-Mart is the world's largest retailer. I am bullish on the company as I see good chances of same store sales acceleration going forward. WMT began adding back SKUs and stepping up price investment in mid-2010. Most of these changes are now bearing fruits. Last quarter, Wal-Mart saw positive comparable store sales for the first time since 2009. Going forward, I see good potential for continued same-store-sales acceleration. Some of the key drivers for it include recent improvement in in-stock levels to the mid 90s; EDLP emphasis; opening price points/small pack size merchandising; inventory reinvestment & space allocations; and local merchandising efforts. In addition, the company's plan to invest $2 billion in the U.S. over the next 2 fiscal years should also support the U.S. comparable store sales outlook. Wal-Mart is available at 11.55x forward earnings and I believe it is a very attractive buy at current levels.
Abbott Laboratories is a global diversified pharmaceutical and healthcare product company. It engages in the discovery, development, manufacture and sale of healthcare products worldwide. The company's drug portfolio includes Humira, Norvir, Depakote, and Synthroid. Abbott is also a leading player in nutritional supplements and diagnostic systems.
I like Abbott because of the announced spin-off of its pharmaceutical business. This move is likely to create more value for shareholders through focused execution and better use of capital. The spin-off is expected by the end of this year.
From the fundamental perspective too, Abbott's business is seeing good trends. Abbott reported strong Q4 2011 results ahead of the Street's estimates, and provided a healthy 2012 guidance, driven by organic growth and higher gross margins. Going forward, Abbott is expected to continue delivering solid earnings results, as Humira is likely to continue to post strong sales, with market gains in underpenetrated markets and Abbott's recent global expansion in emerging markets. Abbott management also noted that the company will resume share buybacks in 2012, hinting that its stock is currently undervalued.
Procter and Gamble is a worldwide manufacturer and marketer of consumer and personal care products. Its well known brands include Pampers, Gillette, Pantene, Duracell, Clairol, Charmin and Bounty. It largely is a mature market player, with only 30% of revenue coming from emerging markets.
Last month, P&G reported disappointing FYQ2 results and lowered its 2012 guidance. With its business heavily levered toward developed markets, I expect P&G will continue to struggle with top-line growth as consumer spending weakens. P&G is losing its market share in mature markets, and it needs more innovation in its products to drive the growth. Even in emerging markets, I believe that margins will be under pressure, due to investment spending, along with forex headwinds.
With the macro headwinds in the form of input costs and currency drags, and continued softening of developed-market growth rates, I don't like the risk-reward profile of P&G, and expect a near-term downside.
McDonald's is the largest fast food restaurant chain by revenue. It operates in 120 countries with about 81% of its units operating as independent franchisees. It derives about half of its revenue from the U.S., one-third from Europe and remaining from APMEA regions.
Although McDonald's posted strong Q4 results driven by same-stores sales growth and franchised margin expansion, things may become a bit more difficult in 2012 as the macroeconomic forces are likely to be less supportive. Cost outlook for 1H 2012 looks challenging with food inflation trending above 4.5-5.5% in Europe. Strong negative forex pressure is also expected because of weakening euro and other currencies. Both these factors are expected to add to margin compression in the near-term. Other factors affecting the bottom line include G&A expense, which is expected to be up by 6% due to the Olympics and technology investments.
In addition to these headwinds, McDonald's PE multiple at 16x is almost near its post-recovery high and I see little chance of any appreciation from here.