Every quarter, many money managers have to disclose what they've bought and sold via "13F" filings. Their latest moves can shine a bright light on smart stock picks.
Today, let's look at Analytic Investors, founded in 1970 and based far from Wall Street, in Los Angeles. The company's investment approach uses quantitative systems as it aims to outperform its benchmarks while maintaining similar risk levels. It has even applied some of its quantitative processes to predicting Super Bowl outcomes -- with a 9-1 record.
The company's reportable stock portfolio totaled $6.2 billion in value as of Sept. 30, 2013.
Interesting developments
So what does Analytic Investors' latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are T. Rowe Price and Franklin Resources. Other new holdings of interest include Synovus Financial (SNV -0.62%) and Two Harbors Investment (TWO -0.88%). Synovus Financial, a 125-year-old Georgia-based bank, is far smaller than its main rivals in the South, and it has recently been losing market share to them. On the other hand, its bottom line has been growing, and its commercial loan portfolio is strong. (Commercial loans can be more profitable than consumer loans.) Its third quarter revealed continued improvement in credit quality along with loan growth, and its CEO spoke of a switch to offense rather than defense, now that Synovus's TARP debt has been repaid. The stock yields 1.2%.
Two Harbors is a mortgage REIT, or mREIT -- and one rated rather highly by our analysts. It offers shareholders a fat 12.2% dividend yield, but note that its payouts don't get the lower tax rates of other dividends. Two Harbors Investment has more flexibility than some of its peers because it's a "hybrid" mREIT, investing in both government agency-backed mortgages and ones that are not so backed. Still, rising interest rates (and mortgage prepayments) have hurt mREITs, though Two Harbors has fallen less than its key peers over the past year, in part due to hedging.
Among holdings in which Analytic Investors increased its stake was Gilead Sciences (GILD -2.70%), a biotech company that has doubled in value over the past year. Gilead's all-oral hepatitis-C treatment, Sovaldi (sofosbuvir) has just received FDA approval and seems headed for approval in Europe as well. Investors are looking for it to outsell some competing formulas, despite its hefty price tag of $1,000 per day, or about $84,000 for a full 12-week treatment. Gilead is well-known for its success with HIV drugs and just got European approval for an HIV treatment. Meanwhile, Gilead Sciences also recently reported promising clinical trial results for drugs treating lymphomas and blood disorders, and it's addressing heart disease with its cardiovascular drugs Letairis and Ranexa, too.
Analytic Investors reduced its stake in lots of companies, including Rite Aid (RAD -51.21%) and American Capital Agency (AGNC -1.28%). While many of us continue to think of Rite Aid as struggling, its stock has more than quintupled over the past year. Clearly, the drugstore chain is doing something right. Its turnaround involves a focus on wellness and customer loyalty, in addition, of course, to filling prescriptions -- and like other health-care-related companies, it's poised to benefit from Obamacare delivering many newly insured customers. It might seem that the stock has no upside left after its strong run, but it still seems cheaper than its key rivals, though their businesses have stronger track records. Bears would also remind us that Rite Aid still carries a lot of debt.
American Capital Agency is another mREIT, with a tantalizing dividend yield recently above 15%. Its payout has been shrinking in recent years, though, and Goldman Sachs just initiated coverage of the company with a sell rating, fearing further dividend cuts and rising interest rates when the Fed cuts back on its quantitative easing. On the bright side, though, incoming Fed chair Janet Yellen is open to ending the 0.25% payments to banks parking funds with the Fed, which could benefit American Capital Agency. Meanwhile, the company has been moving more into 15-year mortgages and decreasing its focus on 30-year ones. The shorter loans are less volatile, but they also offer lower yields. On whether buying the stock is preferable to drinking sour milk, our analysts are divided -- learn why.
Finally, Analytic Investors' biggest closed positions included Delphi Automotive and Newmont Mining.
We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13F forms can be great places to find intriguing candidates for our portfolios.
