Here's What These $3 Billion Money Managers Have Been Buying

It can pay off to keep an eye on the big guys.

May 12, 2014 at 11:00AM

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 Todd Asset Management. Based in Kentucky, the money managers' investing philosophy centers around their estimate of price in relation to intrinsic value. They add: "We believe investing in stocks with attractive valuation, improving fundamentals and market acceptance of those characteristics increases the probability of outperformance."

The company's reportable stock portfolio totaled $3.5 billion in value as of March 31, 2014.

Interesting developments
So what does Todd Asset Management's latest quarterly 13F filing tell us? Here are a few interesting details:

New holdings of interest include Qiwi PLC (NASDAQ:QIWI) and Xerox Corp (NYSE:XRX). You may not have heard of Russia-based Qiwi PLC, as it has been on the market for less than a year. But you might want to be aware of it, as it sports a market cap near $1.6 billion and pays out a whopping 4.4% dividend yield. The company is in the online payment systems business, with more than 125,000 kiosks and over 40,000 terminals. The stock has tumbled lately on worries that sanctions on Russia will hamper its business. In March the company posted fourth-quarter results, with revenue up 35% and profit up 33%. Be wary of that dividend, though, as it surpasses the company's earnings per share. That's OK so long as the company keeps growing briskly.

Xerox, meanwhile, offers a 2.1% dividend yield, but it's paying out less than a third of its earnings. The company is saddled with a lot of debt, but it's been working on turning itself around by shedding some non-core assets and shifting its focus from hardware to high-margin services. (Services recently made up about 57% of revenue.) The company isn't growing briskly at this point, but it's generating a lot of cash flow and seems appealingly priced, with its forward P/E near nine. Critics don't like CEO Ursula Burns' compensation, which has topped $10 million for several years in a row, and some worry about recent insider sales, too. Xerox surpassed estimates with its first-quarter earnings, but revenue fell 2%, and management pared back near-term guidance.

Among holdings in which Todd Asset Management increased its stake was Hewlett-Packard Company (NYSE:HPQ). The printing giant recently got a positive analyst report from Pacific Crest Securities -- its first one in 10 years from the firm -- with analyst Brent Bracelin seeing improving profitability and expecting IBM's exit from the x86 server market to be beneficial to HP. Hewlett-Packard has been hurt by the weak PC market and has been cutting costs aggressively as it aims to expand in areas such as 3-D printing and health care analytics. Its last quarter featured estimate-topping revenue and earnings, with earnings rising 10% over year-ago levels and revenue dropping by 1%. Hewlett-Packard's future is rather uncertain.

Todd Asset Management reduced its stake in lots of companies, including security specialist ADT Corp. (NYSE:ADT), which yields 2.6%. ADT has been struggling in recent years and is saddled with a lot of debt. The company recently reported second-quarter earnings that topped expectations, but they were lower than in the year-ago quarter. Indeed, revenue and earnings have been shrinking for several years as the company faces stronger competition, including some from an unlikely rival: cable companies. It has been cutting costs but also spending a lot on share buybacks. It also upped its dividend by 60% recently. ADT stock is heavily shorted -- and deservedly so, says my colleague Sean Williams.

Finally, Todd Asset Management's closed positions of interest include Celgene Corporation (NASDAQ:CELG), a biotech company that produces successful anemia drug Revlimid and pancreatic cancer drug Abraxane, as well as a recently approved arthritis drug, Otezla. Celgene is investing heavily in other companies with promising early stage drugs, such as a formula tackling Crohn's disease. My colleague Stephen Simpson has noted that Celgene has "a deep early-stage pipeline of oncology drugs" and "meaningful label expansion opportunities for approved drugs." The company surpassed earnings expectations in its last quarter, but its revenue lagged.

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.

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