A Look At Atalanta Sosnoff Capital's Top Buys

by: The Analyst Hub

Atalanta/Sosnoff Capital Corporation is an investment manager providing services to institutional clients such as corporations, public retirement plans, government entities, endowments, charitable and religious organizations, and individuals. It has about $11 billion of assets under management and invests in both equity and fixed income. US investment bank Evercore Partners acquired a 49% stake in Atalanta Sosnoff in 2010, but control remained in the hands of founder and CEO Martin Sosnoff.

Equity Investment Strategy: Atalanta/Sosnoff Capital invests in the companies that are entering into a cycle of accelerating earnings whereby the rate of growth in earnings going forward (12-24 months) is greater than in its past. Thus, tracking the picks of Atalanta Sosnoff Capital can be helpful for medium-term investors. The following is a list of its top seven buys by market value in the last quarter, as released in the most recent 13F filing with the SEC.



Shares Held - 06/30/2011

Shares Held - 09/30/2011

Change in shares

Microsoft Corporation





News Corp.





Google Inc.





Allergan Inc.





Mastercard Incorporated





CVS Caremark Corporation





Amazon.com Inc.





My favourite long candidates among the stocks above are Google, Microsoft and CVS Caremark.

I am bullish on Google both from a short term as well as a long-term perspective. My short-term confidence in the stock is derived from recent comscore data on search growth. According to comscore, US search queries accelerated to 8.8% year/year in October from 6.8% y/y in September. Total month-over-month growth was 5.7% in October (above 3.8% m/m growth seen in September). Google searches increased 7.6% y/y, an improvement of over 5.5% y/y in September and 7.4% y/y in 3Q11. Google gained 30 bps market share mostly at the expense of Yahoo (YHOO). This healthy trend in search is reassuring particularly amid an uncertain macro economic backdrop.

In addition to the near-term healthy trends, I see a big potential from the recent announcement by Google that it will be launching 100 online video channels on YouTube that would feature new original programming from celebrities such as Jay-Z, Madonna, Shaquille O’Neal and Tony Hawk. This venture will generate ~25 hours of new, on-demand, original content per channel per day, and Google is reportedly paying up more than $100 mn in advance to its content partners. I believe this can potentially have a very big impact in the long run (2013 onwards). Currently only 3% of youtube videos are monetized through video advertising. This can increase significantly as more and more original content comes online through these partnerships. Also, quality content is likely to bring in more advertisers and we are likely to witness secular shift of advertisers from traditional media to online.

Trading at less than 14x forward EPS, I find the risk reward profile of Google very attractive.

Microsoft Corporation is another interesting long candidate in the above list. Microsoft is engaged in developing, licensing and supporting a range of software products and services. The company also designs and sells hardware, and delivers online advertising to customers. It operates in five segments: Windows & Windows Live Division, Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices Division. Microsoft’s EPS forecast for the current year is 2.85 and next year is 3.13. According to the consensus estimates, its top line is expected to grow 6.50% in the current year and 6.90% next year. It is trading at a forward P/E of 8.61. Out of 33 analysts covering the company, 23 are positive and have buy recommendations, one has a sell recommendation and nine have hold ratings.

I find Microsoft a very attractive medium-term buy at 8.61x next year's EPS. At these levels, I don’t think the market is pricing in any of the positive initiatives the company is taking. Some of the important initiatives that can drive meaningful growth over the next one year are the Windows 8 launch, Office 365, which is gaining traction, and a successful launch of Nokia's (NYSE:NOK) WP7 phones. In addition, Microsoft’s excess cash position provides a downside cushion. Microsoft recently raised its dividend by 25% and it has significant potential to increase its dividend pay-out ratio further to support the stock. I think Microsoft offers an attractive risk reward for investors who can hold the stock for the next one year.

I also like CVS Caremark Corp. CVS recently reported better-than-expected results pointing to continued strength in its business. According to UBS analyst, CVS is likely to continue benefiting from multiple industry growth opportunities going forward including the Express Scripts (ESRX)/ Medco Health (MHS) merger, the Walgreen (WAG)/ Express Scripts dispute, and the generic wave. The company’s analyst day on Dec 20, can be a good catalyst for the stock.

Disclosure: I am long CVS through a bull call spread.