Bank of New York Mellon (NYSE:BK) or BNY Mellon has a 200-plus-year old history, with its predecessor bank, the Bank of New York established in 1784 by American founding father Alexander Hamilton before its merger with Mellon Financial Corp. in 2007. Besides being the oldest bank in the U.S. and being founded by a founding father, the bank also has among its distinctions as being the first corporate stock to be traded on the NYSE. Today, BNY Mellon has over $1.2 trillion in assets under management and $25.5 trillion in assets under custody and administration, thereby making it the largest deposit bank in the world. About $262 billion of its assets are invested in equities traded on U.S. exchanges per its latest 13-F filing for Q1 of 2012, filed with the SEC on Monday.
The assets are well-diversified into over 3,900 positions, with over two-thirds deployed in large-caps, another 20% in mid-caps, and the remaining 10%-15% in small-caps. With such a well-diversified portfolio, it is understandable that it holds a position in most U.S. traded equities, with larger positions in large-cap equities; hence, looking at just its holdings, or even its largest dollar moves would not be that useful. We focused instead on its high 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 peers in the group (see table):
The TJX Companies Inc. (TJX): TJX is a leading off-price apparel and home fashions retailer in the U.S. and internationally, operating its stores under the T.J. Maxx, Marshalls, Winners, HomeSense, HomeGoods and T.K. Maxx trademarks. BNY added $713 million in Q1 to its $623 million prior quarter position. Other leading institutions with large bullish bets on TJX in Q4 (the latest quarter for which most institutional filings are available) included mutual fund powerhouse Fidelity Investments adding 6.9 million shares to its 40.1 million share prior quarter position, and mega fund manager JPMorgan Chase & Co., with $1.3 trillion in assets under management, adding 1.6 million shares to its 4.6 million share prior quarter position.
TJX shares are currently trading at all-time highs, up about 30% YTD on top of a 40% gain in 2011. However, they still trade at a reasonable 15-16 forward P/E and 9.6 P/B compared to averages of 16.3 and 4.4 for its peers in the discount retail group, while earnings growth is expected to continue at a strong 15.2% annual rate from $1.99 in 2012 to $2.64 in 2014. Also, recently the company raised its quarterly dividend by 21% to 11.5c/share, so that its dividend yield of 1.1% is well above the group average of 0.6%.
Baker Hughes Inc. (BHI): BHI provides wellbore products and technology services and systems for drilling, formation evaluation, completion and production, and reservoir technology and consulting to the global oil and natural gas industry. BNY added $155 million in Q1 to its $207 million prior quarter position. Other leading institutions with large bullish bets on BHI in Q4 (the latest quarter for which most institutional filings are available) included JPMorgan Chase & Co. adding 6.2 million shares to its 2.5 million share prior quarter position, and mega fund Wellington Management, with $254 billion in 13-F assets, adding 5.4 million shares to its 18.8 million share prior quarter position.
BHI shares have tumbled recently, down almost 20% YTD, after warning late last month that its Q1 operating profit before tax would be lower than Q4 of last year, due to a shifting in U.S. rig activity from natural gas to oil and liquids-rich basins, thereby prompting a number of brokers, including Global Hunter and Barclays, to subsequently downgraded the stock and/or reduced their price targets. Its shares currently trade at 8-9 forward P/E and 1.2 P/B compared to averages of 15.5 and 3.4 for its peers in the oil field services group, while earnings are projected to increase from $4.20 in 2011 to $4.74 in 2013.
International Paper Co. (IP): IP is a paper and packaging company with worldwide operations, manufacturing containerboards, printing and writing papers, market pulp and coated paperboard. BNY added $96 million in Q1 to its $214 million prior quarter position. Other leading institutions with large bullish bets on IP in Q4 (the latest quarter for which most institutional filings are available) included Neuberger Berman adding 2.3 million shares to its 1.1 million share prior quarter position, and JPMorgan Chase & Co. adding 2.1 million shares to its 0.7 million share prior quarter position.
IP reported a good Q4 at the beginning of February, beating earnings (66c v/s 61c) and missing revenues ($6.37 billion v/s $6.52 billion). Its shares trade at 9-10 forward P/E and 2.2 P/B compared to averages of 10.6 and 4.0 for its peers in the paper and related products group, while earnings are projected to rise at a modest 5.3% annual growth rate from $3.10 in 2011 to $3.44 in 2013.
The following are additional companies that BNY Mellon is bullish about, accumulating shares in them in Q1 (see Table):
- Williams Companies (WMB), an energy infrastructure company that owns and operating approximately 13,700 miles of natural gas pipeline system extending from Texas, Louisiana, Mississippi and offshore Gulf of Mexico through Alabama, Georgia, South Carolina, North Carolina, Virginia, Maryland, Pennsylvania, and New Jersey to the New York City metropolitan area, in which it added $81 million in Q1 to its $208 million share prior position;
- Ingersoll-Rand Co. (IR), a manufacturer of a diverse range of industrial and commercial products, including climate control units, fluid handling systems, compressed air systems, biometric access control systems and energy efficient solutions, in which it added $66 million in Q1 to its $183 million share prior position;
- Seagate Technology (STX), that manufactures hard disk drives for the enterprise, desktop, mobile computing and consumer electronics markets, in which it added $61 million in Q1 to its $41 million share prior position;
- Delphi Automotive Plc (DLPH), a manufacturer of vehicle components, powertrain, safety and thermal technology solutions for automotive and commercial vehicle markets worldwide, in which it added $61 million in Q1 to its $65 million share prior position; and
- Regions Financial Corp. (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 added $56 million in Q1 to its $79 million share prior position.
The following are BNY Mellon's high conviction bearish picks, based on its Q1 selling activity (see Table):
- Cliffs Natural Resources (CLF), that is a mining and natural resources company that produces iron ore pellets, lumps and fines iron ore, and metallurgical coal products, in which it cut $147 million in Q1 from its $291 million prior quarter position;
- Potash Corporation of Saskatchewan, Inc. (POT), the world's largest integrated fertilizer and related industrial and feed products company by capacity, in which it cut $128 million in Q1 from its $199 million prior quarter position;
- Riverbed Technology Inc. (RVBD), a provider of products and services that improve applications and accessibility of data over wide area networks or WANs, in which it cut $88 million in Q1 from its $145 million prior quarter position;
- Geneva, Switzerland,-based Weatherford Intl Ltd (WFT), a leading provider of equipment and services used in the drilling, evaluation, completion, production and intervention of oil and natural gas wells to independent oil and natural gas producing companies worldwide, in which it cut $69 million in Q1 from its $120 million prior quarter position;
- American Eagle Outfitters (AEO), an apparel and accessories retailer that operates over a thousand American Eagle Outfitters, Aerie standalone, and 77Kids stores in the U.S. and Canada, in which it cut $56 million in Q1 from its $115 million prior quarter position;
- Teva Pharmaceutical (TEVA), an Israeli developer of generic and branded drugs and active pharmaceutical ingredients, in which it cut $52 million in Q1 from its $141 million prior quarter position; and
- Gerdau SA (GGB), a Brazilian producer and seller of common and special steel rods for the construction industry, as well as in the automotive and agricultural sectors, in which it cut $33 million in Q1 from its $104 million prior quarter position.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix by Edgar Online, 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 am long STX.
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