First Pacific Advisors' Latest Stock Picks

by: Insider Monkey

By Matt Doiron

First Pacific Advisors, which is co-managed by Robert Rodriguez and Steven Romick, filed its 13F on the 7th of August. This SEC filing reports many of the long positions held by a hedge fund or other large investment fund each quarter, to be disclosed to the public. As a result, investors can study these filings for any large changes or trends. Let's take a look at the 10 largest positions in First Pacific's portfolio this quarter versus last quarter, with new top positions for the second quarter in bold:

Q1 2012 (share count in parentheses)

Q2 2012 (share count in parentheses)

ENSCO (7.1 million)

CVS Caremark (8.1 million)

CVS Caremark (8.1 million)

Aon (7.3 million)

Aon (6.9 million)

ENSCO (7.2 million)

Wal-Mart Stores (4.8 million)

Covidien (5.3 million)

Covidien (5.2 million)

Microsoft (8.9 million)

Western Digital (6.8 million)

Western Digital (8.2 million)

Microsoft (8.2 million)

Rowan Companies (7.1 million)

Rowan Companies (7.0 million)

Wal-Mart Stores (2.9 million)

Omnicare (5.8 million)

Omnicare (6.5 million)

Occidental Petroleum (2.0 million)

Anheuser-Busch Inbev (2.5 million)

First Pacific's 2.5 million share position in Anheuser-Busch Inbev (NYSE:BUD) became a top 10 holding, replacing Occidental Petroleum (NYSE:OXY). First Pacific still owned 2.1 million shares of Occidental Petroleum at the end of the second quarter though. First Pacific did make a noticeable addition by finishing the quarter with about 270,000 shares of Google (NASDAQ:GOOG), which was more than double the 110,000 shares it had owned three months earlier. This resulted in an increase in the position's size to the point that Google became one of the fund's top 15 holdings. First Pacific didn't make many big changes this quarter, but here are three moves that we think are worth noting:

Wal-Mart. First Pacific sold about 40% of its stake in the big-box retailer. The stock had been up 17% in the first half of the year, and here the fund likely thought it would be a good idea to take some money off the table. Wal-Mart (NYSE:WMT) is currently at a decent price in the market with a trailing P/E ratio of 16, a forward P/E of 14, good earnings growth in its most recent quarter, and a moderate dividend yield. It could be a good addition to a portfolio, but some profit taking would also be understandable at this point.

Western Digital. The stock skidded 26% during the second quarter but it held its place as First Pacific's 6th largest holding according to the 13F filings. Why? Because the fund doubled down, adding about 1.4 million shares to its portfolio- a 20% increase. Western Digital (NYSE:WDC) provides hard drive storage products. There might not be much that investors can take away from the fund's activity here- Western Digital blew through its earnings expectations in last month's quarterly report and the stock is now up 41% from the end of June. However, it still trades at only five times forward earnings despite the large increases in revenue and earnings that it recorded compared to the same quarter last year. Billionaires Glenn Dubin and Jim Simons are among WDC shareholders (see Jim Simons' top picks).

Google. It's not quite in the top 10, but it was a big addition and that's worth discussing. The company has a strong position in search and in the smartphone world with its Android line, and is reportedly planning a tablet device that will compete with Microsoft (NASDAQ:MSFT)'s, Apple (NASDAQ:AAPL)'s, and Amazon's offerings, among others. Its most recent quarter saw double-digit growth rates in revenue and earnings compared to the same period in the previous year and sell-side analysts expect this growth to continue: its forward P/E of 13 is well below its trailing P/E of 19. The stock has underperformed the NASDAQ recently, and First Pacific apparently thinks that the company's strong brand deserves better. First Pacific has plenty of company. Google is the second most popular stock among hedge funds.

Disclosure: I am long AAPL, GOOG, MSFT.