5 Big Buys By Gateway Investment Advisers Llc

Includes: BAC, CME, GE, KO, MSFT
by: Efsinvestment

by Aubrey Tabuga

Gateway Investment Advisers, Llc is a Cincinnati-based financial investment advisory firm. Data from Whalewisdom.com shows that it currently operates with a market value of $10.021 billion. It made 3 new stock purchases and sold 9 in the third quarter. The firm is known for its hedge equity strategies that cater to risk-conscious investors. Gateway, however, is less reliant on near-term performance of the stock market when compared to most management firms that employ the equity method. It is one of the longest-running option hedging portfolios.

The third quarter major holdings of Gateway consist of technology (20.75%), services (18.82%), financial (16.58%), healthcare (9.69%), and consumer/noncyclical (8.53%). These are the hedge fund's biggest buys for the third quarter of 2012 based on the number of shares purchased. These are Cola Cola Company, General Electric, Microsoft, CME Group, and Bank of America.



Shares Held

% of Portfolio

% Change

Profit Margin

Long-term annual growth estimate

(EPS next 5Y)

The Coca Cola Company







General Electric Co.







Microsoft Corporation







CME Group Inc.







Bank of America Corporation







Source: Finviz.com

The Coca Cola Company

The Coca-Cola Company is a worldwide leader in manufacturing and marketing nonalcoholic beverages. It is the company behind big names like Diet Coke, Sprite, Fanta, Minute Maid, and Coca-Cola Zero, among others. Founded in 1886, Coca-Cola has a market capitalization of $166 billion and is based in Atlanta, Georgia. The company recently announced a $300-million new investment for the next three years in Vietnam. This aims to capture additional growth opportunities in this emerging consumer market.

Gateway doubled its shares in the KO stocks this third quarter. This is by far the largest Coca-Cola buy the hedge fund did in the last two years. Its current profitability and prospects for long term growth make it an attractive addition to the portfolio of hedge funds implementing hedged equity strategies such as Gateway.

The year-to-date performance is up by 8.11 as of Oct. 26, 2012. It is profitable at a margin of 18.63%. The stock is pretty healthy with a beta of 0.77. Its payout ratio, though slightly inched up to 51.17% from a historical ratio of 50.65%, still shows its ability to raise dividends. The future EPS growth in the long term is fairly promising at 8.16%. Though its EPS ttm of 1.91 is lower than competitor Pepsico's (NYSE:PEP) 3.76, it is still higher than the industry's 0.44. The annual sales growth of KO for the past 5 years is an impressive 14.08%.

General Electric Co.

General Electric Co. is a technological innovator known worldwide for its products in household appliances, aircraft engines, industrial products, energy infrastructure, transportation, healthcare, and capital. GE was founded in 1892 and now has $222.9 billion market capitalization. It is one of the largest technology corporations in the world. GE employs about 301,000 people globally. Because of its demonstrated strength as an investment, TheStreet Ratings recently reiterated the technology company as a buy with a B ratings score.

Gateway currently holds 7.954 million shares of GE. This amount comprises 1.80% of the fund's total holdings. It bought 639,231 GE shares during the third quarter. Gateway has been investing in the Fairfield-based company for a long time, maintaining its holdings at around 7 million.

GE's current EPS of 1.26 is higher than Koninklijke Philips Electronics's (NYSE:PHG) 0.58, and that for the industry in general, at 0.73. Meanwhile, the stock's EPS is lower than that of Siemens' (6.46). However, GE's strength as an investment choice lies in its impressive EPS growth. The long-term annual EPS growth estimate for the next 5 years is a high 12.15%. With a dividend yield of 3.22%, it is also one of Gateway's top dividend stocks. For a company as huge as GE, a profit margin of 9.83% is good enough.

Microsoft Corporation

Microsoft, the global leader in software and operating systems, is geared towardsa more aggressive stance in hardware production. The Windows maker has a huge capitalization of $273 billion. Its 94,000 person strong workforce produces operating systems in various platforms and devices. The company has just unveiled the Surface Tablet, its first attempt at competing with other giants Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) in the hardware business. Already, the reviews are mixed, but it sure pushed the technological landscape to a higher level. After all, Microsoft envisioned it to go well beyond the traditional tablet market.

The fund has increased its position in the software company by 8%. Microsoft comprises 2.2% of Gateway's portfolio as of end-September 2012. The hedge fund has maintained its MSFT shares above 6 million in the past 2 years.

For the past 5 years, the software company's sales have been growing at an annual rate of 7.6%. It is highly profitable with a net profit margin of 21.71%. The EPS is seen to grow at 8.85% yearly in the next 5 years. As of October 26, 2012, the company's year-to-date performance improved by 10.84%. Microsoft is favored by a lot of fund managers including Tepper, Einhorn, and Ray Dalio.

CME Group Inc.

CME Group is the operator of CME, CBOT, NYMEX, and COMEX futures exchanges around the world. It was founded in 1898 as Mercantile Exchange Holdings Inc. In July 2007, the company changed its name into CME Group Inc. CME is based in Chicago and had approximately 140 clearing firms as of end-December 2009. It caters to a wide range of customers that include professional traders, major corporations, institutional and individual investors, and governments. Recently, CME reported a slide in its 3rd quarter profit. Nonetheless, the level has beaten expectations due to lower expenses.

In the third quarter, Gateway increased its position in CME Group by around five times its holdings in the previous quarter. This is by far the largest position that the fund manager had in CME for the last 2 years.

CME has a huge net profit margin of 49.71% as of Oct. 26, 2012. Its EPS is estimated to grow annually at an impressive rate of 10.87% in the next 5 years. The company's sales have been growing at a fast rate of 24.65% in the last 5 years. CME's current EPS is higher than those of its competitors CBOE Holdings (NASDAQ:CBOE) and The NASDAQ OMX Group (NASDAQ:NDAQ). The year-to-date performance has significantly advanced at a rate of 17.86%.

Bank of America Corporation

The Bank of America, one of the largest financial institutions in the world, began its operations a century ago. It is the product of the merger of then Bank of Italy, Liberty Bank of America, and Bank of America. It currently employs 250,000 full-time equivalent employees globally. The bank's business is currently divided into 6 lines - card services, real estate services, deposits, global commercial banking, global banking and markets, and global wealth and investment management.

Gateway Investment Advisers has augmented its position in BAC further by 6% or 459,975 shares this third quarter. The fund now owns 7.762 million shares or 0.68% of its total holdings. The fund management company has been continuously increasing its share in the firm this year. During the first quarter, it bought 1.396 million shares. This was followed by a 629,012-share purchase in the second quarter.

The company's EPS is expected to rise annually at a rate of 7.2% in the next 5 years. This year, the EPS has grown more than twice its former level. The stock's year-to-date performance is a high 64.62%. The current EPS, however, is lower than those of its key competitors and the industry in general.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Aubrey Tabuga, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.