This is the part pertaining to the new purchases for the quarter:
We purchased three new stocks during the quarter. CVS Caremark marries a leading retail pharmacy chain with a large pharmacy benefit manager ("PBM"). The combined company is the largest purchaser of drugs in the world, providing unrivaled scale. CVS trades at a substantial discount to the potential market value of its component parts, largely because many investors are skeptical that these two businesses belong together. Either way, we like the company's free cash flow generation, growth potential, and shareholder-friendly capital plan.
Target is the well-known, leading discount retailer headquartered in Minneapolis. The company's "PFresh" initiative, which adds more grocery items to its general merchandise stores, is off to a strong start. The company also introduced a revamped Target REDCard, a store-brand credit card that provides a 5% discount on nearly all purchases. We expect these investments to drive incremental traffic and profitable sales. In addition, Target will soon bring its "Expect More, Pay Less" tagline to Canada as it re-brands a portfolio of recently acquired stores. The company generates more cash than it needs to run its business, and management is returning excess capital to shareholders via dividend and share repurchase.
Anheuser-Busch InBev NV is a leading global brewer headquartered in Belgium. The company has dominant positions in several attractive beer markets, and a portfolio that includes thirteen billion dollar brands. The beer business is very profitable with handsome margins and strong returns on equity. Management is disciplined and shareholder-friendly. The company should have an opportunity to increase dividends and repurchase shares with its growing free cash flow over the next several years. The stock trades at a reasonable valuation compared to current earnings and a very low multiple of potential free cash flow per share in 2012 and beyond.
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