In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the retail companies that are being accumulated and those being distributed by legendary or guru fund managers, such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, that are well-known for their savvy in picking winning stocks year after year. Taken together, these guru managers are bearish on the group, cutting a net $5.90 billion in Q4 from their $44.75 billion prior quarter holdings in the group (for more general information on these guru funds, please look at the end of the article).
The following are the retail companies that these guru fund managers are most bullish about, and that are trading at a discount to the peers in their group, and that also have a high dividend yield relative to their peers (see Table):
Walgreen Company (WAG): WAG operates a chain of over 7,800 drugstores in 50 states, D.C. and Puerto Rico, selling prescription and non-prescription drugs, and general merchandise. Guru funds together added a net $81 million in Q4 to their $156 million prior quarter position in the company, and taken together guru funds hold 0.8% of the outstanding shares. The top buyer was mutual fund company Hussman Econometrics ($70 million), and the top holders were Hussman Econometrics ($106 million) and value investor First Pacific Advisors, with over $19 billion in assets under management ($73 million).
In its latest Q2 (February) reported at the end of March, WAG beat analyst earnings estimates (78c v/s 77c), with revenues in-line. Its shares currently trade at 12-13 forward P/E and 2.0 P/B compared to averages of 15.5 and 3.2 for its peers in the drug store group, with earnings projected to rise modestly from $2.72 in 2011 to $2.88 in 2013. It also sports a high dividend yield of 2.5% v/s the 0.8% average for its peers in the group. Among its peer peers, Rite Aid Corp. (RAD) generates losses and has no dividend, and CVS Caremark Corp. (CVS) trades at 12-13 forward P/E and has no dividend yield. Also, earnings at WAG are currently being negatively impacted due to its ongoing reimbursement dispute with Express Scripts (ESRX), and the subsequent ending of the relationship between the two. As a result, pressure is mounting for them to resolve the dispute, a move that would add up to 18c in earnings for WAG, per estimates by UBS.
Staples Inc. (SPLS): Staples is an office products company that sells various office supplies and services, business machines, computers, and office furniture. It also provides high-speed, color and self-service copying, other printing services, faxing, and pack and ship services. Guru funds together added a net $48 million in Q4 to their $453 million prior quarter position in the company, and taken together guru funds hold 4.6% of the outstanding shares. The top buyer was value investment management firm Pzena Investment Management, with $14.7 billion in assets under management ($49 million), also the largest holder at $417 million.
In its latest Q1 (January) reported at the end of February, SPLS reported in-line revenues and earnings. Its shares currently trade at 9-10 forward P/E and 1.5 P/B compared to averages of 18.8 and 2.3 for its peers in the miscellaneous/diversified retail group. It also sports a high dividend yield of 2.8% v/s the 0.3% average for its peers in the group. The firm makes about 40% of its revenue from online sales, equating to $10-$11 billion, and one can argue that the online portion of its business should be valued at a higher multiple given the high valuations of online firms such as Amazon.com (AMZN) that currently trades at 89-90 forward P/E and 14.4 P/B. Furthermore, its closes peer Office Depot Inc. (ODP) trades at 16-17 forward P/E and rival OfficeMax Inc. (OMX) trades at 6-7 forward P/E, both with no dividend yields.
The following are some additional retail companies that guru fund managers accumulated in Q4 (see Table):
- Green Mountain Coffee Roasters Inc. (GMCR), probably most famous for its patented single-cup coffee and tea brewing systems for offices and homes sold under the Keurig brand name, a distributor of approximately 200 whole bean and ground coffee selections, cocoa, teas and coffees, in which guru funds together added a net $39 million in Q4 to their $291 million prior quarter position in the company;
- 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 guru funds together added a net $31 million in Q4 to their $1.15 billion prior quarter position in the company; and
- Barnes & Noble Inc. (BKS), that made its name as the operator of retail bookstore chain Barnes & Noble with over 1,300 bookstores in 50 states selling books, magazines, and music, and is rapidly transforming into a content, commerce and technology company, in which guru funds together added a net $18 million in Q4 to their $20 million prior quarter position in the company.
Besides these, guru fund managers based on their Q4 trading activity indicated that they are bearish on the following retail companies (see Table):
- Lowe's Companies Inc. (LOW), a home improvement retailer operating 1,749 stores in the U.S., Canada and Mexico, in which guru funds together cut a net $606 million in Q4 from their $1.53 billion prior quarter position;
- CVS Caremark Corp. , that is a leading integrated pharmacy services provider in the U.S., including the nation's largest pharmacy chain, and a provider of pharmacy benefit management services, in which guru funds together cut a net $204 million in Q4 from their $1.67 billion prior quarter position;
- Safeway Inc. (SWY), that is a food and drug retailer, with almost 1,700 supermarkets in the U.S. and Canada, in which guru funds together cut a net $67 million in Q4 from their $389 million prior quarter position;
- Costco Wholesale Corp. (COST), that operates 582 wholesale membership warehouses in the U.S., Puerto Rico, Canada, the U.K., Korea, Taiwan and Japan, in which guru funds together cut a net $44 million in Q4 from their $590 million prior quarter position;
- Supervalu Inc. (SVU), the nation's largest supermarket retailer and largest food distributor, in which guru funds together cut a net $31 million in Q4 from their $82 million prior quarter position;
- RadioShack Corp. (RSH), engaged in the retail sale of consumer electronic goods and services through its RadioShack store chain, in which guru funds together cut a net $10 million in Q4 from their $24 million prior quarter position; and
- office supply store chain operator Office Depot Inc. , in which guru funds together cut a net $3 million in Q4 from their $11 million prior quarter position.
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Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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