Louis Navellier's Top Q1 Undervalued High Conviction Picks

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 |  Includes: BMY, CVX, CXO, DISH, DUK, ED, EQIX, FAST, HUM, KO, M, NUAN, TSU, V
by: GuruFundPicks

Louis Navellier is Chairman and Founder of Reno, NV-based Navellier & Associates, with $2.6 billion in 13-F assets per its latest filing for Q1 of 2012. A regular on the media circuit, with frequent appearances on Bloomberg, Fox News and CNBC, Mr. Navellier also publishes multiple newsletters, including MPT Review and The Blue Chip Growth Letter, and is the author of the book, "The Little Book That Makes You Rich" that he co-authored with media mogul and former Presidential candidate Steve Forbes. The firm employs a three-step, highly disciplined, bottom-up stock selection process, based on quantitative and fundamental analysis. The portfolio is moderately diversified into over 320 positions, with over two-thirds in large-cap equities, and most of the remaining third in small-caps.

We analyzed Navellier's equity holdings in its Q1 20212 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 undervalued compared to the peers in their group (see Table):

Nuance Communications Inc. (NUAN): Nuance is a leading provider of voice and language solutions for businesses and consumers worldwide, transforming the way people interact with devices and systems. More popularly, it is the technology that is widely believed to be behind Apple's intelligent software assistant Siri. Navellier added a new $54 million position in the company in Q1. Other leading institutions with large bullish bets on NUAN in Q4 (the latest quarter for which most institutional filings are available) included Atlanta-based investment powerhouse INVESCO Ltd., with over $650 billion in assets under management, including $174.4 billion in 13-F assets, adding 2.5 million shares to its 2.7 million share prior quarter position, and Boston-based MFS Investment Management, with over $265 billion in assets under management, adding 0.9 million shares to its 0.9 million share prior quarter position.

NUAN shares have been star performers over the last decade, up to more than four-fold during that period. However, recently share prices have been in a downtrend ever since the company reported a disappointing Q3 (December), missing on both analyst revenue and earnings (34c v/s 36c) estimates, now down about 25% since before the report came out almost ten weeks ago. However, growth is still stellar, and the long-term prospects continue to be promising, especially with the announcement last month of the acquisition of medical transcription and speech editing services provider, Transcend Services (TRCR) that is expected to add $140-$150 million in revenue and 8-9c in earnings in FY 2013. Its shares trade at an attractive current 16.3 P/E on a TTM (trailing-twelve-month) basis and 3.0 P/B, compared to averages of 26.6 and 2.9 for its peers in the computer software group, while earnings are projected to grow steadily from $1.36 in 2011 to $1.76 in 2013 at an annual rate of 13.8%.

Macy's Inc. (M): Macy's operates 850 department stores in 45 states, D.C., Puerto Rico and Guam. Navellier added a new $52 million position in the company in Q1. Other leading institutions with large bullish bets on Macy's in Q4 (the latest quarter for which most institutional filings are available) included Goldman Sachs Group, with over $700 billion in assets under management, including over $198 billion in 13-F assets, adding 5.6 million shares to its 4.4 million share prior quarter position, and Boston-based mutual fund company Eaton Vance, with over $45 billion in 13-F assets, adding 3.1 million shares to its 2.6 million share prior quarter position.

Macy's shares have been among the strongest performers in the retail group, up about 25% YTD, and up to about five-fold in the last three years, as earnings growth has been stellar from trough earnings in the $1.30s in 2009-2010 to $2.88 in 2012, and projected to rise to $3.78 by 2014. The company reported that March same-store sales up 7.3% v/s consensus estimates of 4.8%, and a break-out from the 4.6% and 5.3% same-store sales increase reported in February and January respectively. Macy shares currently trade at 10-11 forward P/E and 2.8 P/B, compared to averages of 12.5 and 1.9 for the regional department stores group.

DISH Network Corp. (DISH): DISH provides direct broadcast satellite subscription TV services nationwide. Navellier added a new $50 million position in the company in Q1. Other leading institutions with large bullish bets on DISH in Q4 (the latest quarter for which most institutional filings are available) included guru Daniel Loeb's event-driven hedge fund Third Point LLC, with $2.5 billion in 13-F assets, adding a new 4.0 million share position, and global investment and trading firm Susquehanna International group adding 1.2 million shares to its 0.8 million share prior quarter position.

DISH shares have been strong recently, trading near four-year highs, after the announcement of a favorable FCC rulemaking proposal in March that seeks to allow satellite airwaves to be available for mobile broadband use, which would enable DISH to launch a wireless cellular network. Its shares now trade at 10-11 forward P/E compared to the 14.6 average for its peers in the cable TV group.

The following are additional companies that Navellier is bullish about, accumulating shares in them in Q1 (see Table):

  • Visa Inc. (V), that provides a global retail electronic payments network in support of the credit and debit payment programs of financial institutions, in which it added a new $58 million position in Q1;
  • Equinix Inc. (EQIX), that provides network-neutral co-location, inter-connection and managed services to enterprises, content providers, financial services companies and network service providers, in which it added a new $54 million position in Q1;
  • Fastenal Co. (FAST), a wholesaler and retailer of industrial and construction supplies sold through 2,566 stores in the U.S., Canada, Mexico, the Dominican Republic, Puerto Rico, Singapore and China, in which it added a new $47 million position in Q1; and
  • TIM Participacoes, SA (TSU), a Brazilian provider of prepaid and postpaid wireless and fixed-line voice and data services to over 50 million subscribers, in which it added $43 million in Q1 to its $1 million prior quarter position.

The following are Navellier's high conviction bearish picks, based on its Q1 selling activity (see Table):

  • utility company Consolidated Edison Inc. (ED), in which it cut out completely in Q1 its $43 million prior quarter position;
  • Coca Cola Co. (KO), that manufactures non-alcoholic beverage concentrates and syrups sold to bottlers and fountain wholesaler, in which it cut $42 million in Q1 from its $43 million prior quarter position;
  • Duke Energy Corp. (DUK), that provides electrical and natural gas utility services to about 4 million electric and 0.5 million gas customers in the Americas, in which it cut out completely in Q1 its $40 million prior quarter position;
  • Humana Inc. (HUM), a provider of managed healthcare services through HMO, PPO and government contracts to about 11.2 million members in the U.S, in which it cut out completely in Q1 its $39 million prior quarter position;
  • Bristol-Myers Squibb Co. (BMY), that develops branded pharmaceuticals for the treatment of cardiovascular, virological and other infectious diseases, in which it cut out completely in Q1 its $38 million prior quarter position;
  • integrated oil & gas company Chevron Corp. (CVX), in which it cut $38 million in Q1 from its $39 million prior quarter position; and
  • Concho Resources Inc. (CXO), an independent oil & natural gas company, engaged in the acquisition, development and exploration of oil and natural gas in southeast NM and west TX, in which it cut out completely in Q1 its $37 million prior quarter position.

Table

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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 have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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