Boston-based mutual fund powerhouse Fidelity Investments with $1.5 trillion in assets under management, including $555 billion in 13-F assets per its latest March 2012 quarter filing with the SEC last Wednesday, is one of the largest institutional investors, accounting for about 3% of the total market capitalization of the U.S. equity markets. Its investment in the consumer and retail sectors alone amounts to over $100 billion, more than the entire 13-F assets of most institutional investors.
Fidelity holds over 2,900 positions in its 13-F portfolio, with positions in most mid- to large- as well as many small-cap consumer and retail sector companies. Hence, we focused our efforts on analyzing the equity holdings in its Q1 2012 13-F to determine its highest conviction bets by sector, 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 in the consumer and retail sectors that are undervalued compared to their peers, and are trading near their highs (see Table):
Delphi Automotive Plc (DLPH): DLPH is a manufacturer of vehicle components, powertrain, safety and thermal technology solutions for automotive and commercial vehicle markets worldwide. Fidelity added $62 million in Q1 to its $220 million prior quarter position in the company. Other leading institutions with large bullish bets on DLPH in Q1 include New York-based mega fund Bank of New York Mellon Corp. adding 1.9 million shares to its 2.0 million shares prior quarter position, and Boston-based mega fund MFS Investment Management adding 9.4 million shares to its 0.3 million shares prior quarter position.
DLPH reported its Q1 (March) quarter over three weeks ago, on April 24th, with revenues coming in-line and beating analyst earnings estimates ($1.04 v/s 92c). The stock has been a strong performer since its IPO last November, currently trading within 15% of its highs, and up about 32% YTD compared to the 11% gain for the average auto stock. DLPH shares trade at a reasonable 6-7 forward P/E and 4.2 P/B compared to averages of 8.7 and 2.7 for its peers in the auto/truck OEM group, while earnings are projected to grow at a strong 13.5% annual rate from $3.33 in 2011 to $4.29 in 2013.
Anheuser-Busch InBev (BUD): Belgium-based BUD is the world's leading provider of beer, with over 200 beer brands. Fidelity added $187 million in Q1 to its $236 million prior quarter position in the company. Other leading institutions with large bullish bets on BUD in Q1 include Franklin Resources adding a new 1.4 million share position, and Morgan Stanley adding 0.5 million shares to its 2.2 million share prior quarter position.
BUD reported its Q1 (March) the week before last, on Monday, with revenues coming in 4% higher year-over-year and earnings rising sequentially to $1.23, 60% above last year's Q1. Its shares have been in a multi-year rally, almost doubling from the its re-entry onto the U.S. exchanges almost three years ago, and up about 15% YTD. The shares currently trade at 13-14 forward P/E and 3.0 P/B compared to averages of 15.9 and 2.7 for its peers in the alcoholic beverages group, while earnings are projected to rise at a 12.1% annual rate from $4.04 in 2011 to $5.08 in 2013.
The following are additional consumer and retail stocks that Fidelity is bullish about, accumulating shares in them in Q1 2012 (see Table):
- Las Vegas Sands Corp. (LVS), an owner, developer and operator of various integrated resort properties in the U.S., Macau, and Singapore, in which it added $331 million in Q1 to its $513 million prior quarter position;
- Lowe's Companies Inc. (LOW), a home improvement retailer operating 1,749 stores in the U.S., Canada and Mexico, in which it added $323 million in Q1 to its $1.18 billion prior quarter position;
- Kraft Foods Inc. (KFT), that is among the largest branded food and beverage companies in the world, offering products such as biscuits, confectionary products, beverages, cheese products, grocery items, and convenient meals, in which it added $239 million in Q1 to its $772 million prior quarter position;
- Activision Blizzard Inc. (ATVI), that publishes interactive entertainment software and peripheral products for consoles, hand-held devices and PC, in which it added $225 million in Q1 to its $100 million prior quarter position; and
- department store chain operator JC Penney Inc. (JCP), in which it added $174 million in Q1 to its $243 million prior quarter position.
The following are Fidelity's high conviction bearish picks in consumer and retail sectors, based on its Q1 selling activity (see Table):
- Kohl's Corp. (KSS), that operates over 1,000 family-oriented, specialty department stores in the U.S., in which it cut $206 million in Q1 from its $246 million prior quarter position;
- Walgreen Company (WAG), that 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, in which it cut $163 million in Q1 from its $641 million prior quarter position;
- Kroger Co. (KR) is one of the largest grocery retail chain operators in the U.S., and it also manufactures and processes food for sale in its supermarkets, in which it cut $113 million in Q1 from its $150 million prior quarter position; and
- US Airways Group Inc. (LCC), that is a holding company primarily for US Airways, an air carrier engaged in transporting passengers, cargo and mail, in which it cut $69 million in Q1 from its $218 million prior quarter position.
Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.