By Matt Doiron
Egerton Capital Limited was founded in 1994 by Tiger Cub William Bollinger and co-founder John Armitage. Bollinger has since retired, but Armitage continues to manage the fund which has AUM of about $4.5 billion. Last week the fund filed its 13F for the second quarter of 2012, and we have the opportunity to analyze their top picks. Egerton Capital Limited doesn't recommend or endorse any of the stocks or analysis in this article, and we have no relationship with the fund, but based on SEC filings, these are our opinions of what they are thinking. Read on to see the fund's largest reported positions or compare them to previous filings.
Egerton's largest position was embattled media company News Corp. (NWSA). News Corp. has been facing legal difficulties and the potential of a breakup of the firm, though the latter factor is a potential source of value given the attractive characteristics of spinoffs. The fund owned 13.5 million shares of the stock at the end of June, which was up from the 10.4 million it had owned at the end of March. News Corp., however, currently trades at a rather high trailing P/E of 50 as the market is depending on a substantial amount of value to be unlocked through its breakup.
Joining News Corp. as a media/entertainment company at the top of Egerton's portfolio was Disney (DIS). Disney is beating the market with a 48% rise over the past year and yet its P/E multiples are in the low- to mid-teens. Disney also reported earnings growth of 24% in its most recent quarter compared to the same period in the previous year, beating sell-side expectations for the fourth quarter in a row. Egerton initiated a 5.4 million share position in Disney by the end of the second quarter and the stock has only risen slightly since then, giving investors a chance to join the fund at a potentially similar price.
Visa (V) was a new position in the fund's portfolio in the first quarter of 2012, with Egerton reporting a position of 2 million shares at that time (helping make Visa one of the top ten services stocks among hedge funds). That stake has dropped to 1.6 million shares, placing the stock third according to the fund's 13F filing. Visa is priced as a growth stock, with a forward multiple of 18, but has been able to deliver at least on the revenue side in past quarters and the stock is up 24% so far this year.
The fourth largest of the fund's positions was hedge fund darling Apple (AAPL). Apple led our list of the ten most popular stocks among hedge funds for the first quarter of 2012, and despite cutting its stake in the stock by 32% to about 430,000 shares in the first three months of the year and cutting it again to about 300,000 shares by the end of the second quarter, the strong price performance has preserved it as a top position for Egerton. Apple actually trades at a reasonable trailing P/E of 15, but is encountering increased competition.
Finally, Egerton reported ownership of about 580,000 shares of CF Industries Holdings (CF), up from about 140,000 at the end of March. CF Industries provides nitrogen- and phosphate-based fertilizers and carries a $13 billion market capitalization. Its trailing price-to-earnings ratio is 8 and its forward P/E is 9, despite its exposure to the potential growth area of agriculture. Looking out a few more years, the market underestimates the company's value relative to sell-side expectations even further: the five-year PEG ratio is only 0.5. This one looks like a straight value play by the fund.
The largest shift we see in Egerton is a heavy move into media through its increased stake in News Corp. (though this company also has the potential to create shareholder value through splitting up) and its new stake in Disney. We would advise investors to take this tactic into account as well as to consider CF Industries on value grounds.