I like to analyze what professional money managers are doing with their portfolios. As Ben Graham said, an investment operation is one which, upon thorough analysis, promises safety of principal and satisfactory return. Operations not meeting these requirements are speculative. I research very carefully each stock that I think of adding to my portfolio. One starting point is evaluating what hedge fund managers are doing with their money.
Because they have large teams of analysts that spend the whole day analyzing fundamental data of each company, I have found over the years that studying new purchases or concentrated bets from the best managers is a great starting point for a methodical investment research. I think it is very interesting to analyze what managers like Warren Buffett, Daniel Loeb and others bought last quarter and the fundamental story of its purchase. I check their holdings via whalewisdom.com.
Warren Buffett pick Viacom (VIAB) - My Opinion: BUY
I think that Viacom is a solid company. The company has a strong moat and defensive business. Recently, Barrington Research wrote a bullish report about VIAB. The report mentions the strength of VIAB's core cable networks and the solid restructuring efforts that have been taking place at Paramount. The research highlights the company's solid complement of leading cable networks and the increasing success in its film entertainment operation.
Viacom also reported solid earnings numbers. Viacom reported Q1 earnings of $0.98 per share, $0.08 better than the Capital IQ Consensus Estimate of $0.90 while revenues rose 2.0% year/year to $3.33 billion in comparison to the $3.33 billion consensus. For Q1, Viacom repurchased 14.7 million shares under its stock repurchase program, for an aggregate purchase price of $700 million. As of May 2, 2012, Viacom had $5.90 billion remaining in its $10 billion stock repurchase program. I like companies that buy back its own shares.
Basically, the company is buying back another 10% of its stock this year, after buying back 11% over the last two years as it continues to be financially disciplined instead of pursuing acquisitions. I estimate that the company could buy back 36% of its stock back over the next four years and is well placed to be even more aggressive. I like VIAB's focus on the interaction of big TV screen and iPad.
Daniel Loeb pick Delphi Automotive (DLPH) - My Opinion: Buy
I think recent Delphi Automotive earnings were very strong. DLPH reported Q1 earnings of $1.04 per share, $0.12 better than the Capital IQ Consensus Estimate of $0.92 while revenues rose 2.4% year/year to $4.09 billion vs the $4.13 billion consensus. I like the company upgraded guidance, forecasting FY12 EPS of $3.63-3.85 vs. $3.60 Capital IQ Consensus Estimate.
I think that with strengthening US sales, and no further deterioration of European production and sales, an easy superficial case can be made to buy any auto parts supplier stock.
I think DLPH is a buy because the company's sales will grow at a pace that exceeds the average rate of growth in global vehicle demand. The company provides products that not only are in high demand by consumers but also that government legislation requires to be installed. Sales growth and return on investment should also be bolstered by Delphi's ability to innovate product and process technologies. Manufacturing discipline and labor in low-cost countries should enable significant operating leverage as volume increases. A global manufacturing presence enables the company to follow its customers around the globe, capitalizing on automakers' use of global vehicle platforms.
David Einhorn pick Expedia (EXPE) - My Opinion: BUY
Expedia reported earnings that beat expectations and made the stock rally. EXPE reported Q1 adjusted earnings of $0.26 per share, excluding non-recurring items, $0.10 better than the Capital IQ Consensus Estimate of $0.16 while revenues rose a strong 12.2% year/year to $816.5 million vs the $783.96 million consensus. Gross bookings increased 15% (16% excluding foreign exchange) for the first quarter of 2012 compared with the first quarter of 2011, primarily driven by a 24% increase in hotel room nights through accelerated growth at all leisure brands. This shows strong execution from Expedia management team.
I think that EXPE main catalyst is the acceleration of growth in the Expedia.com brands due to website optimization. The 1Q12 outperformance was fueled by accelerating hotel bookings growth at all of the company's leisure brands except for Expedia.com. I expect upgrades at the Expedia.com websites (over 40% of bookings) will start to drive faster bookings growth through 2013 and beyond. Faster growth at the Expedia.com brand, plus continued momentum at Hotels.com and other company brands, suggest to me that Expedia's fundamentals will remain strong for at least the next 12 months.
Steve Mandel pick TripAdvisor (TRIP) - My Opinion: BUY
TripAdvisor strength comes from its international segment. In the last earnings report, international segment significantly outpaced market expectations due to less competition in comparison to the U.S. I believe U.S. weakness will continue and I think that Google's competition will likely move overseas at some point, possibly affecting TRIP. However, given the significant international outperformance and length of time it could take for Google to grow overseas I believe TRIP has ample room for expansion.
I think that the current TRIP uptrend is driven by the 1Q12 results that were ahead of Street expectations. Revenue was driven by a 30% y/y increase in hotel shopper traffic. Sales and marketing expenses were less than forecasted, resulting in 3% y/y adjusted EBITDA growth. I think TRIP results reflect strong hotel advertising demand and lower marketing expense. User traffic increased 39% y/y, as integration with Facebook is progressing as 120 million Facebook (FB) users are accessing TripAdvisor, up 34% from December 2011.
I think that TRIP's moat comes from its huge comment review base. TripAdvisor grew its content base at a rate of more than 40 contributions per minute, reaching more than 60 million reviews and opinions on more than 570,000 hotels and accommodations, 800,000 restaurants and 180,000 attractions in more than 110,000 destinations, covering almost every country throughout the world.
John Griffin pick VeriSign (VRSN) - My Opinion: HOLD
While VeriSign has some positives, I did not like VRSN last earnings miss. VRSN reported Q1 earnings of $0.42 per share, excluding non-recurring items, $0.01 worse than the Capital IQ Consensus Estimate of $0.43 while revenues rose 13.3% year/year to $205.7 million vs the $208.52 million consensus. Despite the earnings miss, management expressed confidence in the business:
"The first quarter was another record in terms of new domain name registrations, reflecting the global growth in internet adoption and e-commerce. We believe that the security and stability Verisign has provided spanning two decades, and continues to provide, is an important factor in that growth."
I like VRSN's moat. VeriSign' s registry, security and communications services are essential for the smooth functioning of the online world. ICANN recently renewed Verisign's contract to serve as the authoritative registry operator for the .net registry for another six years till 2017.
I think VRSN is a hold because the shares are not cheap and considering the recent earnings miss and market volatility, the shares are prone to trade with increased levels of volatility in the short term. VeriSign is currently trading at a P/E multiple of 23x consensus 2012 EPS estimate of $1.72 compared to the S&P 500 multiple of 13x. The disposal of non-core business units is expected to boost margins while the buy-back of shares should help the bottom line. Margins continue to expand and management indicated its goal of exiting 2012 with an operating margin of 52% to 54%.
Julian Robertson pick Netflix (NFLX) - My Opinion: SELL
I do not like Netflix for valuation reasons and increased business risks. I believe that NFLX faces numerous challenges, including DVD subscriber losses, rising content costs and an increased competitive landscape. Expectations for softer domestic streaming subscriber net adds raises questions about the total addressable market (slower gross net adds and/or higher implied churn).
While NFLX reported better than expected 1Q results and expects stronger FY12 subscriber growth, the stock declined on weaker 2Q guidance. In its Q2 guidance, NFLX anticipates adding less than 1 million domestic streaming subscribers in the quarter vs. 1.74 million in Q1. Management attributed the slower growth to seasonality. Despite tepid guidance, NFLX is confident that it can grow its domestic streaming base by 7 million households in 2012, in line with the growth in streaming subscribers in 2010. I believe it will be challenging to reach this target for two reasons. First, the company's target market of U.S households is shrinking because the service has churned through so many subscribers already. Second, the number of traditional streaming options is growing through various on demand services, such as HBO Go.
Glenn Greenberg pick Oracle (ORCL) - My Opinion: BUY
I like Oracle because the company has a strong product portfolio that has helped the company maintain its dominant position in the enterprise software and relational database management system (RDBMS) segment. Continued adoption of Exadata and Exalogic will boost top-line growth over the long term. In fact, both Exadata and Exalogic products delivered solid growth in the third quarter of fiscal 2012. Both Exadata and Exalogic continue to attract new customers, including major companies and government agencies. ORCL's new innovative products, such as Fusion Cloud ERP and Cloud CRM are expected to boost organic growth over the long term.
I think that Oracle's diversified product pipeline will provide it with a competitive edge over IBM, Microsoft (MSFT), SAP and Teradata (TDC) in the database and hardware market and will lead to increased new software
license sales going forward. The stock is not expensive, trading at just 12.0x consensus 2012 EPS estimate, a 78% discount to the peer group average of 56x, much greater than the average discount of 61.0% historically, indicating a potential upside in the shares.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.