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 Eagle Asset Management, the massive money-management arm of Raymond James Financial. Tracing its history back to 1976, Eagle Asset Management provides investment services via individual managed accounts, as well as mutual funds. The company's reportable stock portfolio totaled $17.5 billion in value as of March 31, 2015.
What does Eagle Asset Management's latest quarterly 13F filing tell us? Here are a few interesting details: The company reduced its position in Starwood Hotels & Resorts Worldwide Inc (NYSE:HOT) by 44% and sold out entirely of Qualcomm (NASDAQ:QCOM) and InvenSense Inc (NYSE:INVN). Starwood may be in a state of flux right now, but Qualcomm and InvenSense are worth considering as investments.
Starwood Hotels & Resorts Worldwide Inc is a major player in the hospitality realm, with more than 430 hotels in more than 70 countries. Its brands include Sheraton, W, Weston, Le Meridian, Aloft, and Element.
Starwood plans to finish spinning off its time-share business as Starwood Vacation Ownership in 2015. This is viewed as a reasonable move, as time share valuations are rather steep these days, and thus the new entity should command an attractive price. (Marriott International spun off its own timeshare unit, Marriott Vacations Worldwide, which now sports a P/E ratio above 30.)
There has been some speculation that Starwood might buy a smaller hotel-operator or perhaps merge with a big one -- or even get bought out itself. So why is Eagle Asset selling shares?
Well, the company is struggling to grow. Its CEO resigned in February after failing to meet growth goals. Starwood's last quarter featured drops in both revenue and earnings, though the decreases were less than expected by analysts. In a conference call, management cited a need to reinvigorate brands like Sheraton and to drive more top-line growth while cutting costs and becoming a leaner operation.
Management said it was exploring its options, including the sale of the company. It has even hired a specialist to look into that.
Qualcomm has a lot to offer. It's a giant in mobile chips and has gobs of patents for which it collects licensing fees. As my colleague Even Niu has pointed out, one way or another, it powers almost every mobile device.
Want more evidence of Qualcomm's beautiful business model? Consider that it generates more than $5 billion in free cash flow annually and that its net margins top 25%. Qualcomm is even giving Apple some competition via its Snapdragon Sense ID, which is reportedly more robust than Apple's Touch ID fingerprint identification technology.
The company is also rewarding shareholders well. Not only has its stock averaged annual gains of 16% over the past five years, but its dividend (which was boosted 14% in April) recently yielded 2.8%, and it has launched a $5 billion stock buyback plan. So why would Eagle sell shares? One reason might be Qualcomm's increasing reliance on just two companies and their suppliers -- Apple and Samsung -- which account for more than half its revenue.
InvenSense Inc has seen its shares plunge 28% over the past year, in part due to investor disappointment that profit margins aren't growing -- but that has some investors calling the motion-sensor chipmaker a bargain now. After all, sometimes companies sacrifice profit margins for a while as they grab market share and set themselves up for more growth. InvenSense topped expectations in its last earnings report, with management noting, "We achieved the highest revenue in company history, driven by strong market share gains and several high-volume customer wins." Management also projected a drop in gross margins, however, which was met with less enthusiasm.
While many companies are trying to expand rapidly in the fast-growing mobile arena, InvenSense, already a major player there, is building other revenue streams, such as in microphone and audio platforms -- and even automobiles and drones. Management also has high hopes that growth will be driven by China and rising demand for optical image stabilization in mobile devices. That's good enough for many patient believers, but others worry about InvenSense's reliance on Apple and Samsung, as well as the competition it faces -- for example, its chips didn't make it into the first iteration of the Apple Watch.
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. Therefore, 13F forms can be great places to find intriguing candidates for our portfolios.