Seeking Alpha
Research analyst, growth at reasonable price, newsletter provider, Top 300 fund picks
Profile| Send Message| ()  

American stock investor, investment advisor and financial analyst, Martin Zweig, can be called one of the original 'gurus' of investing, back when the term 'guru' wasn't applied to investing experts like it is today. He is best known for his 1986 book, "Winning on Wall Street" which laid out his methodology on selecting undervalued growth stocks, based on a system that uses fundamental analysis and market timing. Although he quit the game in 2005, his investing legend and philosophy lives on in his hedge fund Zweig-DiMenna Associates that he co-founded in 1984 with Joseph A. DiMenna, Jr.

The Zweig-DiMenna fund has over $1.7 billion invested in U.S. equities as of the latest SEC 13-F filing for the December 2011 quarter. The portfolio is well-diversified with 140 positions, with about three-quarters of the assets in the fund deployed in large-caps, and most of the remaining quarter in mid-caps.

We analyzed Zweig-DiMenna'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 positions (see Table):

Google Inc. (GOOG): GOOG is the Internet's premier search engine. Zweig-DiMenna added a new $45 million position in Q4, its second largest buy after a $54 million new buy of Pharmasset that was acquired by Gilead Sciences Inc. (GILD). Other leading institutions with large bullish bets on GOOG in Q4 included UBS AG adding 0.91 million shares to its 0.56 million shares prior quarter position, and 2011's best performing hedge fund Tiger Global Management, headed by Chase Coleman, adding 0.66 million shares to its 0.07 million share prior quarter position.

GOOG currently trades within striking range of its all-time highs, and at 12-13 forward P/E and 3.6 P/B, a discount compared with averages of 16-17 and 1.4 for its closest peer Yahoo! Inc. (YHOO), while earnings are projected to grow at a stellar (for a company this size) 18.0% annual rate from $36.06 in 2011, to $50.17 in 2013, compared with the sub-10% annual earnings growth rate for YHOO. The stock has been an excellent long-term performer, up almost six-fold since its IPO in 2004. Given its market leadership, strong growth, and attractive valuation, It is likely that it will continue outperforming the market going forward.

Cameron Intl Corp. (CAM): CAM manufactures oil and gas pressure control and separation equipment for production in onshore, offshore and subsea applications. Zweig-DiMenna added a new $40 million position in Q4, among its largest buys in the quarter. Other leading institutions with large bullish bets on CAM in Q4 included Putnam Investment Management added 2.6 million shares to its 0.3 million share prior quarter position, and Ameriprise Financial adding 1.5 million shares to its 2.7 million share prior quarter position.

CAM shares are currently consolidating near its all-time highs, up almost 10% YTD. In its latest Q4 reported in February, CAM beat analyst earnings (77c v/s 76c) and revenue estimates ($2.03 billion v/s $1.89 billion), but guided down earnings for Q1 and the fiscal year. Its shares currently trade at 12-13 forward P/E and 2.8 P/B compared to averages of 12.0 and 2.3 for its peers in the oilfield machinery & equipment group. The company is scheduled to release its Q1 before the market on April 26th.

Goldcorp Inc. (GG): GG is a Canadian company engaged in mining and exploration of silver, copper and gold throughout North and South America. Zweig-DiMenna added $38 million in Q4 to its $11 million prior quarter position. Other leading institutions with large bullish bets on GG in Q4 included RS Investment Management adding 3.1 million shares to its 1.4 million share prior quarter position, and AllianceBernstein adding 2.4 million shares to its 1.0 million share prior quarter position. GG trades at 13-14 forward P/E and 1.7 P/B compared to averages of 10.1 and 3.6 for its peers in the gold mining group, while earnings are projected to increase from $2.24 in 2011 to $3.41 in 2013, at an annualized growth rate of 23.4%.

Other high conviction buys by Zweig-DiMenna in Q4 include (see Table):

  • Occidental Petroleum (OXY), engaged in the exploration and production of crude oil and gas worldwide, in which it added a new $35 million position;
  • Aetna Inc. (AET), a diversified U.S. health care benefits company offering a range of health insurance products and related services, including medical, dental, pharmacy, behavioral health, group life, and disability plans as well as medical management capabilities and Medicaid health care management, in which it added a new $31 million position;
  • Pioneer Natural Resources (PXD): PXD is engaged in the exploration and production oil and gas in the U.S. and South Africa, in which it added $31 million to its $20 million prior quarter position;
  • MetLife Inc. (MET), that offers life, non-medical health, auto and home-owners insurance, annuities and financial services, in which it added a new $22 million position; and
  • Gilead Sciences Inc., a developer of therapeutics to treat viral, fungal, respiratory and cardiovascular diseases, in which it added a new $21 million position.

The following are Zweig-DiMenna's high conviction bearish picks based on their Q4 selling activity (see Table):

  • Priceline.com Inc. (PCLN), a pioneer of name-your-own price service, and a diversified online travel services company providing airline ticket, hotel room, car rental, vacation package, and cruise services through Priceline.com, in which it cut out completely its $54 million prior quarter position;
  • Barrick Gold Corporation (ABX), a Canadian company engaged in production of gold and copper in Peru, Canada, U.S., Australia, Chile, and five other countries, in which it cut out completely its $44 million prior quarter position;
  • Philip Morris International Inc. (PM), a manufacturer of cigarettes sold worldwide under the Marlboro, LM, Parliament, Virginia Slims and other brands, in which it cut $29 million from its $69 million prior quarter position;
  • Cigna Corp. (CI), a global health services company and the fourth-largest health insurer in the U.S. market based on enrollment, that operates healthcare, group disability and life segments in the U.S., and its international business sells individual insurance in several countries and provides coverage for people living outside their home countries, in which it cut out completely its $28 million prior quarter position;
  • Starbucks Corp. (SBUX), that operates over 17,000 coffee shops worldwide, including over 11,000 stores in the U.S., in which it cut out completely its $27 million prior quarter position;
  • Visa Inc. (V), a provider of global retail electronic payments network in support of the credit and debit payment programs of financial institutions, in which it cut $22 million from its $43 million prior quarter position;
  • premium apparel, accessories, fragrances, and home furnishings provider Ralph Lauren Corp. (RL), in which it cut $22 million from its $36 million prior quarter position; and
  • Newmont Mining Corp. (NEM), that produces gold in the U.S., Australia, Peru, Indonesia, Canada, New Zealand, Ghana and Mexico, in which it cut $20 million from its $27 million prior quarter position.

Table

click to enlarge

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.

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.

Source: Hedge Fund Zweig-DiMenna's High Conviction Buys And Sells In Its $1.7 Billion 13-F Portfolio