4 Big Buys, 3 Big Sells At Eaton Vance

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Includes: AAPL, BAC, BEN, BHGE, C, MCD, PPL
by: Efsinvestment

Founded in 1924 by Charles Eaton, Eaton Vance (NYSE:EV) is one of the largest portfolio management companies. The company offers mutual funds, managed accounts, tax-managed funds, wealth management solutions, closed-end funds, and variable trust funds. Eaton Vance is a publicly traded company. Current and past employees own 15% of the outstanding stocks, including 100% of the voting shares.

As of the 2011 third quarter, Eaton Vance had a diversified portfolio of equities. According to Edgar Online, financial stocks constitute 19.87% of the portfolio, followed by services (18.97%) and technology stocks (15.22%). In the most recent quarter, the firm made significant transactions. I have analyzed the 3 big sells and 4 big buys from a fundamental perspective, adding my O-Metrix scores, when applicable. Here is a fundamental analysis of the 3 big sells and 4 big buys by Eaton Vance Investment Managers:

Big Sells

Company Name

Ticker

Shares Held

% Change

% of Portfolio

O-Metrix

Citigroup

C

2.05 million

-84.78

0.13

6.36

McDonald’s

MCD

7.50 million

-27.69

1.47

3.82

Bank of America

BAC

3.04 million

-91.72

0.04

N/A

Big Buys

Franklin Resources

BEN

2.61 million

%334

0.57%

4.82

PPL Corp

PPL

11.71 million

%78.22

0.73%

2.82

Apple

AAPL

3.09 million

%13.90

2.60%

7.47

Baker Hughes

BHI

2.79 million

%1900

0.33%

7.18

Data obtained from Finviz/Morningstar and is current as of November 3. You can download O-Metrix calculator here.

Big Sells

Citigroup lost almost 37% of its market cap in 2011. Eaton Vance reduced its holdings by almost 85%, but it still constitutes 0.13% of the portfolio.

Given its exposure to international markets, Citigroup is one of the most diversified financial giants. One can think of Citigroup as the conglomerate of the financials. The company has presence over 100 countries, serving more than 200 million clients. Based on an annualized EPS growth estimate of 9.30%, it has an O-Metrix score of 6.36. My FED+ fair value range is $57 - $118 per share. However, it is worth to state that financials are risky investments. I use 11% discount rate in my estimations. For a higher discount rate, the fair-value range will be lower.

McDonald’s has been an outperformer, returning 14% since January. It reported great earnings in Q3. EPS of $1.45 was $0.02 higher than the consensus estimate. Eaton Vance reduced its holdings by almost 28%, but it still constitutes 1.47% of the portfolio.

McDonald’s is one of the best stocks for the dividend-oriented portfolios. It offers a yield of 3.03%. The company is doing great with presence on almost every part of the world. However, the current price does not offer a compelling entry point. Based on an annualized EPS growth estimate of 10.10%, it has an O-Metrix score of 3.82. My FED+ fair value range is $79 - $93 per share.

Bank of America was among the biggest losers of the 2011. It lost 50% since January. Eaton Vance reduced its holdings by almost 92%, but it still constitutes 0.04% of the portfolio.

There is a lot going on in the Bank of America. The company was doing fine before the sub-prime crises. However, since its forced marriage with Merrill Lynch, things got really complicated. Even after the Buffett deal, the sell-off did not really cool down. The company is surely worth more than where it trades today. Nevertheless, selling or buying now is not a good idea, since the stock is highly volatile these days.

Big Buys

Franklin Resources lost 6% since January. Eaton Vance increased its holdings by 334%, and it constitutes 0.57% of the portfolio.

Based on an annualized EPS growth estimate of 10%, it has an O-Metrix score of 4.82. My FED+ fair value range is $133 - $172 per share. The stock looks undervalued. Analysts mean target price of $124 imply 20% upside potential.

PPL Corporation is one of the largest electric utility companies. It has been an outperformer, returning 24% since January. Eaton Vance increased its holdings by almost 78%, and it constitutes 0.73% of the portfolio.

Based on an annualized EPS growth estimate of 2%, it has an O-Metrix score of 2.82. My FED+ fair value range is $26 - $44 per share. At a price of $29, PPL is trading at the lower-end of its fair value range. The company offers a safe yield of 4.82%, which is a better substitute for government bonds.

Apple is in an unstoppable momentum. While there have been ups and downs, the stock returned 23% since January. Eaton Vance increased its holdings by almost 14%, and it constitutes 2.60% of the portfolio. Apple is the largest holding in Eaton Vance’s portfolio.

While Apple’s recent earnings report was below the consensus estimate, EPS was almost 50% higher than the previous quarter. In the last 4 quarters, earnings are up by 82%, whereas the 1 year return is only 28%. Based on an annualized EPS growth estimate of 18.40%, it has an O-Metrix score of 7.47. My FED+ fair value range is $652 - $734 per share. Hudson Square has a pretty bullish target of $700. (Full analysis here.)

Baker Hughes is involved in the oil and gas services sector. It is an equipment provider to the industry. Even after returning 22% in the last month, the year-to-date return is still in the red. Eaton Vance increased its holdings by 1,900%, and it now constitutes 0.33% of the portfolio.

Based on an annualized EPS growth estimate of 19%, it has an O-Metrix score of 7.18. My FED+ fair value range is $87 - $121 per share. UBS and Barclays have target price of $82 and $83, respectively. If analysts’ bullish EPS growth estimates of 19% hold, Baker Hughes can be a huge outperformer.

Disclosure: I am long AAPL.