Every quarter, 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 the TIAA-CREF Trust Co. In case you're not aware, TIAA-CREF offers financial services to workers in the fields of education, medicine, culture, and research. Almost 100 years old, it has a solid reputation -- 71% of its funds earn four or five stars from Morningstar. The TIAA-CREF Trust Co. manages much of TIAA-CREF's client money, and its reportable stock portfolio totaled $8.6 billion in value as of March 31.
So what does TIAA-CREF Trust's latest quarterly 13F filing tell us? Here are a few interesting details: It established new positions in Whole Foods Market (NASDAQ:WFM), Visa (NYSE:V), and MasterCard (NYSE:MA) and upped its stakes in Williams Companies Inc. (NYSE:WMB) and Monsanto Company (NYSE:MON) by 708% and 97%, respectively.
Visa and MasterCard sport very attractive business models, collecting processing and transaction fees whenever consumers use the credit cards they offer. They're not the lenders, so they take on less risk, and they also enjoy fat net margins nearing 40%. Visa's revenue has more than doubled since 2008, and it's raking in about $6 billion in free cash flow on a trailing 12-month basis. MasterCard's revenue has come close to doubling over the same period, and its annual rate of free cash flow tops $3 billion. Both companies face competition in payments from rivals such as PayPal and Apple Pay, but they also have considerable growth potential: MasterCard's CFO pointed out in 2013 that 85% of the world's transactions were still conducted in cash. China is one great hope, as it recently opened the door to foreign financial processors, though success there is far from guaranteed. Meanwhile, Visa is replacing American Express as the charge-card partner of major retailer Costco.
Whole Foods Market has been a solid long-term performer: Its stock has averaged annual gains of about 18% over the past five and 20 years (though not without volatility). It has a strong balance sheet, and its revenue has surged about 50% since 2011. Indeed, revenue, operating earnings, net income, and earnings per share have all grown at a double-digit annual rate over the past decade. It's not without challenges, though. It has been lowering prices in the face of competition, as Wal-Mart and Kroger are becoming significant organic-produce vendors. That development will probably lead to shrinking profit margins, which could put pressure on the stock price. So why would TIAA-CREF have bought shares? Well, despite its challenges, Whole Foods is still growing briskly, and it would take a lot of margin compression to get its margins below those of most rivals. Meanwhile, with its recent and forward-looking P/E ratios both in the mid-20s and well below its five-year average in the mid-30s, the stock is appealingly priced.
Williams Companies recently bought up the shares it didn't own of Williams Partners LP (NYSE:WPZ), which simplifies its corporate structure (reducing costs) and is expected to support double-digit dividend increases in the coming years. Together, the companies transport almost a third of America's natural gas, which gives them great long-term growth potential, given that management recently projected demand to grow from less than 5 billion cubic feet per day in 2016 to more than 35 billion cubic feet per day by 2025. The companies' strength in natural gas also makes them vulnerable to swings in the fuel's price. Falling oil prices can hurt, too, making natural gas less attractive in comparison. My colleague Adam Galas is bullish on Williams, noting that it has "one of the largest backlogs of growth projects in the industry, with $30 billion in planned investment through 2020 ... with 99% of that going toward fixed-fee, long-term contracted projects."
Monsanto Company, meanwhile, has long been controversial. Many consumers and investors are displeased with its genetically modified seeds, not to mention its production of herbicides and pesticides. The "March Against Monsanto" campaign featured demonstrations in more than 400 cities in some 48 countries. It doesn't help that the U.N.'s cancer research center has declared glyphosate, the main ingredient in Monsanto's leading weed-killer Roundup, a probable cancer-causing product. Monsanto is challenging this decision, and some see its pursuit of Swiss agricultural technology company Syngenta AG (NYSE:SYT) as a way to diversify away from glyphosate. Supporters of Monsanto don't object to its heavy involvement in genetically modified organisms, saying that GMOs have been around for a long time, are safe, and can boost crop production and even reduce the need for herbicides and pesticides.
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, and 13F forms can be great places to find intriguing candidates for our portfolios.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, owns shares of American Express, Costco Wholesale, and Whole Foods Market. The Motley Fool recommends American Express, Costco Wholesale, MasterCard, Visa, and Whole Foods Market. The Motley Fool owns shares of Costco Wholesale, MasterCard, Visa, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.