Becker Capital's Review Of The Service Sector

Includes: SPLS, TGT, WMT
by: WM Analyst

Becker Capital Management is one of the largest hedge funds in the market. It now manages over 1.7 billion dollars and for the past year its mutual fund, Becker Value Equity Retail (BVEFX) has earned a 15% return, outperforming the S&P by 1.2%.

Becker Capital Management recently published their 13F-HR form, detailing their securities as of September 30th, 2012. Surprisingly, the hedge fund had not drastically adjusted their holdings in many securities except for their assets in the service sector. The largest changes in Becker's portfolio include: Staples (SPLS), Target (TGT), and Wal-Mart (WMT). Becker Capital also holds large positions in other assets in the service sector, which have not been adjusted in the past quarter: Costco (COST), Walgreen (WAG) and Nike (NIKE).

These moves by an institutional owner, particularly one that does not adjust many assets, generally indicate long positions on the particular securities. Becker Capital is an institution that deals primarily with long calls on safe picks. Therefore, the focus of the institution in the last quarter on the three stocks mentioned below, should indicate to the individual investor how institutional owners are changing their feelings towards certain retailers.

Series 1 represents the percent of the portfolio for the quarter that ended June 30th, 2012, while series 2 represents the percent of the portfolio for the quarter that ended September 30th, 2012.

1. Staples

Staples is an office products company. As of January 28, 2012, the Company served businesses of all sizes and consumers in North America, Europe, Australia, South America and Asia. On August 15th, the company reported earnings of 18 cents a share, 4 cents below consensus. Since then the stock has not recovered and currently has a 12.3% Short Interest (percentage of float as of 10/15/12). The asset manager sold off 655,145 shares of Staples over the course of the last fiscal period, which represents roughly 25% of his position.

2. Target

Target operates in three segments: U.S. Retail, U.S. Credit Card and Canadian. As a component of the U.S. Retail Segment, its online presence is designed to enable guests to purchase products via the website or by locating them in one of its stores with the aid of online research and location tools.

This morning J.P. Morgan upgraded Target to Overweight from Neutral with an improved price target of $76. The asset manager has increased his position in Target by roughly 48%, which makes it the 5th largest position in the portfolio. Target has great growth prospects and is ranked number one in its sub-industry by S&P Capital IQ.

3. Wal-Mart

Wal-Mart Stores operates retail stores in various formats around the globe. "Everyday low prices" is the company's pricing philosophy. The company has one of most consistent growth performances in the market. For the past three years, the company's quarterly earnings reported are on average 10% higher than the earnings of the quarter of the same period in the previous fiscal year. Additionally, in the past six months the stock has gained 24% while the S&P has only gained 1.6%. In the last quarter the asset manager has increased his position in Wal-Mart by 36%, adding 128438 shares to his position of 298923 shares.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in WMT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.