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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 basic materials & energy, tech & biotech, and consumer & retail sectors were discussed in prior articles that can be accessed by clicking on the hyperlinks above. In this article, we discuss their high conviction picks in sectors other than those listed above, namely including the financial, industrial and utility sectors, which amounts to almost $160 billion, more than the entire 13-F financial 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 financial, industrial and utility 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 two of its high conviction bullish positions in the financial, industrial and utility sectors, with the first stock surging to new highs and the second one in a multi-year downtrend near its lows (see Table):

Visa Inc. (NYSE:V): V provides a global retail electronic payments network in support of the credit and debit payment programs of financial institutions. Fidelity added $716 million in Q1 to its $1.95 billion prior quarter position in the company. Another leading institution that made a large bullish bet on V in Q1 include Egerton Capital that added a new 2.0 million share position.

Visa shares have been among the top gainers among large-caps this year, up about 14% YTD and up about 50% in the past year, trading within 6% of its all-time highs. The company reported its Q2 (March) the week before last, on Wednesday, beating analyst revenue and earnings estimates ($1.60 v/s $1.51). Its shares currently trade at 16-17 forward P/E and 2.8 P/B compared to averages of 15.1 and 6.1 for its peers in the financial transaction services group.

DryShips Inc. (NASDAQ:DRYS): DryShips is a Greek provider of carrier transportation services with a fleet of 38 dry-bulk carriers and 12 tankers. Fidelity added a new $55 million position in Q1 in the company. Other leading institutions with large bullish bets on DRYS in Q1 included Renaissance Technologies that added a new 0.8 million share position, and Deutsche Bank (NYSE:DB) that added 3.7 million shares to its 29.4 million share prior quarter position.

DRYS shares have been in a multi-year downtrend since peaking in late 2007 above $130, in concert with the collapse in dry bulk freight rates as represented by the Baltic Exchange Dry Index (BDI). The company is scheduled to release its Q1 (March) next Thursday, and in the latest Q4, it beat revenue and missed earnings estimates (7c v/s 8c). The shares trade at 7-8 forward P/E and 0.3 P/B, compared to averages of 30.9 and 1.3 for the shipping group.

The following are additional financial, industrial, and utility sector stocks that Fidelity is bullish about, accumulating shares in them in Q1 2012 (see Table):

  • Illinois Tool Works Inc. (NYSE:ITW), that is a manufacturer of plastic and metal fasteners and fastening tools for the construction, automotive and appliance markets, in which it added $436 million in Q1 to its $10 million prior quarter position;
  • PNC Financial Services Group (NYSE:PNC), that operates as a diversified financial services company, offering retail banking, corporate and institutional banking, asset management and residential mortgage banking services, via 2,470 branches in PA, NJ, DE, Washington D.C., and 10 other states, in which it added $415 million in Q1 to its $99 million prior quarter position;
  • Capital One Financial (NYSE:COF), a provider of consumer and commercial lending, credit card products and automobile financing, in which it added $265 million in Q1 to its $992 million prior quarter position;
  • Fifth Third Bancorp (NASDAQ:FITB), a diversified financial services' holding company, engaged in commercial, retail and trust banking, data processing services, investment advisory services and leasing activities via 1,312 centers in 12 states, in which it added $148 million in Q1 to its $192 million prior quarter position; and
  • International Paper Co. (NYSE:IP), that is a paper and packaging company with worldwide operations, manufacturing containerboards, printing and writing papers, market pulp and coated paperboard, in which it added $71 million in Q1 to its $6 million prior quarter position.

The following are Fidelity's high conviction bearish picks in the financial, industrial, and utility sectors, based on its Q1 selling activity (see Table):

  • CSX Corp. (NYSE:CSX), that operates a 21,000 mile rail system in 23 states, the District of Columbia and the Canadian provinces of Ontario and Quebec, and also offers services for the transport of intermodal containers and trainers, in which it cut $509 million in Q1 from its $961 million prior quarter position;
  • Regions Financial Corp. (NYSE: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 cut $218 million in Q1 from its $476 million prior quarter position;
  • Centerpoint Energy Inc. (NYSE:CNP), that provides electricity transmission and distribution, natural gas distribution and sales, interstate pipelines and gathering operations to customers in AR, IL, IA, KS, LA, MN, MS, MO, OK, TX, and WI, in which it cut $136 million in Q1 from its $140 million prior quarter position; and
  • American Capital Agency (NASDAQ:AGNC), which is a mortgage REIT that invests in single-family residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government-sponsored entity, or a U.S. Government agency, in which it cut $115 million in Q1 from its $272 million prior quarter position.

Table


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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.

Source: Q1 2012 Fidelity's $555B Filing: 1 Surging, 1 Plunging And Other High Conviction Buys And Sells