Manning & Napier expects returns on equity markets to be modest throughout the rest of 2013. It also believes volatility could return, which they will take as a potential buying opportunity, according to their first quarter newsletter. The letter continues:
For clients with a long time horizon and a need for growth to meet their investment objectives, we continue to focus on companies that can grow in an otherwise growth challenged global economy. In many cases the companies we find most attractive have a well-established presence in regions, sectors, or industries that are expected to expand at a pace that is multiple times quicker than the broader economy, and are trading at attractive valuations relative to that growth potential. In our view, reinvestment rate risk is the main challenge facing such investors today, and long-term investors who maintain large exposures to traditionally ‘safe’ investments are unlikely to earn absolute returns that are sufficient to meet their investment objectives.
They investors of Manning & Napier bought 23 new stocks in the first quarter, for a total portfolio of 352 stocks, valued at more than $19.4 billion. The largest of the new buys are Starz (STRZA), Micros Systems Inc. (MCRS), MSCI Inc. (MSCI), Cooper Companies (COO) and Dollar General Corp. (DG).
Below is a brief overview of the new holdings:
Starz Inc. (STRZA)
Starz Inc. spun off of Liberty Media Corp. on Jan. 11, 2013. Manning & Napier acquired 4,893,340 shares of Starz for $18 per share on average in the first quarter. The firm owned a holding in Liberty Media (LBTYA) previously, but sold out in the second quarter of 2012. Starz’s Friday afternoon share price is $21.93, after increasing 40% over the past three months.
Starz is a global media and entertainment company providing subscription programs on pay television channels in the U.S., through its flagship networks Starz, Encore and Movieplex. It has 55 million subscribers as of Sept. 30, 2012.
Starz in the fourth quarter reported a 2% decrease in revenue to $422 million compared to the year-ago quarter, primarily due to declining Starz Distribution revenue from fewer titles available from the Weinstein Company LLC, as well as not renewing an agreement with Netflix (NFLX). Subscriptions to Starz increased by 85% to 21.2 million, and subscriptions to Encore increased by 5% to 34.8 million.
The company’s net income improved to $252.3 million for the fourth quarter, compared to $236.4 million in the year-ago quarter. It had $749.8 million in cash on its balance sheet compared to $1.1 billion at year-end 2011, primarily due to a cash distribution related to the spin-off. Starz also ended January with $398.9 million remaining under its share repurchase authorization.
Micros Systems Inc. (MCRS)
Manning & Napier bought 1,970,880 shares of Micros Systems Inc. for $45 per share on average in the first quarter – their second-largest new holding. Micros Systems shares have edged up 0.35% year to date, and are priced at $42.61 on Friday afternoon, near a one-year low of $39.72.
Micros is a supplier of information systems to the hospitality and retail industries. In the second quarter of fiscal 2012, ended Dec. 31, 2012, its revenue increased 20% year over year to $324.5 million, and GAAP net income increased 15.2% to $44.1 million. Both were second-quarter records for the company.
Micros has authorized a share repurchase program for 2 million shares, after its current repurchase plan of 2 million shares begun in August 2010 is complete.
Baron Funds commented on Micros Systems in its third quarter 2012 letter, saying:
“Shares of technology systems provider MICROS Systems, Inc. (MCRS) fell 4.0% in the third quarter due to uncertainty around how iPads could impact sales of point-of-sale (POS) terminals. We believe that MICROS Systems's proprietary hardware offers restaurant customers key advantages, including durability, extended useful life, and best-in-class support. We view iPads as a feasible solution only at the low end of the POS market. MICROS Systems's proprietary software and services are hardware-agnostic, so customers can purchase licenses regardless of the POS terminal being used. (Neal Rosenberg)”
MSCI Inc. (MSCI)
Manning & Napier purchased 1,427,730 shares of MSCI Inc. for $33 per share on average in the first quarter. The shares gained 6.13% year to date, to trade for $32.89 on Friday.
MSCI creates tools to help investors make decisions, with 7,500 clients worldwide, including pension plans and boutique hedge funds, in 22 countries.
The company in its fourth quarter ended Dec. 31, 2012, reported a 9.3% revenue increased to $247.1 million, with the greatest growth seen in its index and environmental, social and governance (ESG) products segment, which increased 16.6%. Its biggest decline came in its energy and commodity analytics segment, which fell 29.6%, due to a correction in its revenue recognition policy for its energy and commodity analytics products at the beginning of 2012.
Net income at MSCI in the fourth quarter was $54.5 million, a 22.4% increase year over year, and diluted EPS rose to $0.44, a 22.2% increase year over year.
In December, MSCI authorized an additional $200 million share repurchase program, for use through 2014.
Cooper Companies (COO)
The new Cooper Companies holding in Manning & Napier’s portfolio is sized at 126,040 shares, purchased at an average price of $102 in the first quarter. This stock’s growth has exploded in recent years. The firm traded it in previous years at significantly lower prices, as seen in its holding history chart below:
Cooper Companies is a global medical device company, operating in vision and women’s health units, and is headquartered in Pleasanton, Calif. Its products are sold in more than 100 countries. Year to date, its share have lifted 15% and closed at $106.25 on Friday.
In its first quarter ended Jan. 31, 2013, Cooper announced a 16% year-over-year revenue increase, to $379.8 million, with its CooperVision unit revenue up 12% and CooperSurgical up 37%. GAAP earnings increased to $74.94 million, or $1.50 per share, compared to $54.62 million, or $1.12 in the year-ago quarter.
Growth was particularly strong in its vision segment with its Biofinity product, and in its surgical segment’s fertility category.
In the fourth quarter, the company also made $44.4 million worth of share repurchases, or 460,000 shares, which increased its debt by $34.3 million to $408.0 million. It has $14.5 million in cash remaining on its balance sheet, up from $12.8 as of Oct. 31, 2012.
Dollar General Corp. (DG)
Manning & Napier purchased 260,230 shares of Dollar General Corp. for $46 per share on average in the first quarter. The company’s shares have climbed almost 128% over the past five years, and are up almost 18% year to date. The share price closed at $51.82 on Friday, which is close to a five-year high of $54.59.
Dollar General is the nation’s largest discount retailer, with more than 10,000 stores in 40 states.
In its fourth quarter ended Feb. 1, 2013, the company had record sales of $4.21 billion, a 0.5% increase year over year. Same-store sales improved 3% due to increased customer traffic and average transaction amount. Net income was also a record $317 million, or $0.97 per share, compared to $293 million, or $0.85 per share, in the year-ago quarter.
In the entire year, Dollar General repurchased $671 million worth of its own shares, or 14.4 million shares. The company has repurchased 19.3 million shares since its repurchase program’s inception in December 2011. It has $644 million shares available to repurchase under its current program.
See the remaining buys and sells of Manning & Napier Advisors Inc. in its portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Manning & Napier Advisors Inc.