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 maintain similar risk levels as its benchmarks but with stronger returns and lower risk while still racking up gains. 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 $5.6 billion in value as of June 30, 2013.
So what does Analytic Investors' latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are Staples and Kohl's. Other new holdings of interest include CYS Investments (NYSE:CYS), a mortgage REIT (mREIT) that recently yielded a 17% dividend yield (!). That's partly due to the stock having fallen more than 30% over the past year. What's up? Well, CYS's second-quarter report featured a big loss as well as a drop in book value. Management blamed poor hedging, among other things. Analysts at Nomura recently lowered their price targets for the company substantially, from $13 to $8.
Among holdings in which Analytic Investors increased its stake was telecom company CenturyLink (NYSE:CTL). It yields an appealing 6% (which reflects a dividend cut of about 25% ) and has been focusing more on rewarding shareholders via stock buybacks). The company landed a hefty Pentagon contract in April, with a possible 10-year value of $750 million, and has been moving into promising arenas such as cloud computing (via its purchase of Savvis). Having merged with Qwest, CenturyLink has substantial debt, topping $19 billion, but also significant free cash flow. Its EPS has been rising in the past few years, but revenue growth is mixed. The company is closing in on union contract agreements with 39% of its workers. It reports its quarterly earnings tomorrow, and putting union concerns behind it may boost investor confidence.
Analytic Investors reduced its stake in lots of companies, including Regions Financial (NYSE:RF), which tripled its dividend a few months ago. The bank's first-quarter earnings topped analyst expectations, but also featured a drop in revenue, and its second quarter was solid but not exciting. Its improved performance in Federal Reserve stress tests has encouraged investors, as has its ambition to profit off mobile banking, but a website shutdown due to a cyber attack was worrisome.
Finally, Analytic Investors' biggest closed positions included American International Group and Viacom. Other closed positions of interest include Arena Pharmaceuticals (NASDAQ:ARNA) and Synovus (NYSE:SNV). Arena is battling in the weight-loss drug arena, with its Belviq formulation that has just begun selling. Belviq has been found to be less effective than some rivals, but also safer, and investors are hoping that insurers will reimburse most customers for it. A more effective form of Belviq is also in development. Meanwhile, Arena has other drugs in development, too, tackling conditions such as autoimmune diseases and hypertension.
Synovus Financial recently repaid its $968 million TARP debt, in part by issuing more stock. Its credit quality has been improving, and it has been posting strong return-on-equity (ROE) numbers. It just reported its fourth profitable quarter in a row.
Analysts at Zacks recently upgraded it to a strong buy, citing an increase in estimated earnings, and expecting dividend hikes and stock repurchases.
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. 13-F forms can be great places to find intriguing candidates for our portfolios.