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Top Three Holdings with Promising Outlook

July 15, 2014 | About:

Over the past days hedge funds have been filing their form 13-F, which is a quarterly report of equity holdings by filed institutional investment managers with at least $100 million in equity assets under management, as required by the United States Securities and Exchange Commission (SEC). In this article, let´s concentrate in one particular hedge fund and try to see the principal holdings in its portfolio. I will look into America First Investment Advisor.

Recently the fund reported its equity portfolio, as at the end of June. The total value of the portfolio amounted to $222.9 million, up from $203.2 million disclosed at the end of the previous quarter. Consequently, the fund's total return was 9.7% in the last quarter. The filing revealed that at the end of June, the fund added 14 new positions to its equity portfolio, and sold out of 24 other companies. The top ten portfolio holdings as of the end of the quarter represented 41.8%. The largest changes from previous 13-F´s fillings are in the tech and energy sectors.

In this article, we have selected three companies, in which the fund holds the largest stakes, in terms of market value.

The first on the list is The Clorox Company (NYSE:CLX), in which the fund disclosed a $10.53 million stake with over 115,150 shares. The company is a diversified producer of household cleaning, grocery and specialty food products is also a leading producer of natural personal care products.

Long-Term Vision

In October 2013, Clorox introduced its 2020 Strategy. The 2020 Strategy focuses on delivering long-term, profitable growth through the year 2020. The key elements of its strategy to grow sales and earnings over the long term are: category, channel and geographic expansion, increased brand investment, and cost reductions.

The company's long-term financial goals include:

  • Growing net sales 3-5 percent annually
  • Expanding EBIT margin 25-50 basis points annually
  • Generating free cash flow of 10% to 12% of sales annually
It has improved earnings per share by 5 cents in the most recent quarter compared to the same quarter a year ago. A special mention deserves the return on equity, which tremendously increased to an extremely high value (more than 1000%). It has a proven commitment to returning cash to investors, with a current dividend yield of 3.05 % which is considered good to protect investor´s purchasing power. Between share repurchases and dividends paid to stockholders, the firm returned more than $2 billion in cash to its stockholders in the last five years.

Other hedge fund gurus have also been active in the company. Ray Dalio (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) have taken long positions in the first quarter of 2014.

Sigma-Aldrich Corporation (NASDAQ:SIAL) comes in next, the fund owning over 95,670 shares, worth $9.7 million. The company makes and sells a wide range of biochemicals, organic chemicals, and chromatography products.

Expanding Its Business

We expect the company to improve in several of its businesses, growing at a mid-single-digit in 2014. Although it had a low digits gain in its Research Chemicals unit, Sales in Applied and SAFC Commercial divisions are expected to rise.

It reported earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The firm has increased its quarterly dividend by 7% to 23 cents per share from the prior payout of 21.5 cents a share.

Other hedge fund gurus have also been active in the company. Jeremy Grantham (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio) and Chris Davis (Trades, Portfolio) have taken long positions in the first quarter of 2014.

In Becton, Dickinson and Company (NYSE:BDX) the fund disclosed ownership of over 80,530 shares, worth $9.5 million. This company provides a wide range of medical devices and diagnostic products used in hospitals, doctors' offices, research labs and other settings.

Recent Agreement

The past month the company has signed an agreement for the installation of its BD Cato Workflow Solution in The University of Texas MD Anderson Cancer Center. Currently, Becton, Dickinson carries a Zacks Rank #3 (Hold). It has reported strong earnings growth of about 4.3% and the stock has surged over the past year.

Other hedge fund gurus have also been active in the company. Steven Cohen (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Jim Simons (Trades, Portfolio) have taken long positions in the first quarter of 2014.

Final Comment

In the next chart we can appreciate the stock’s price movements. Since 2009, the three stocks have an interesting upward trend.


As we have seen, all of the stocks still have good upside potential despite the fact that they have already risen in the past year. The three stocks are certainly attractive for fundamental investors and make it a worthy investment for America’s portfolio. In future articles we are going to calculate the intrinsic value of these stocks to determine if they are a good buy in terms of valuation.

Disclosure: Omar Venerio holds no position in any stocks or funds mentioned.

About the author:

Omar Venerio is capital markets, derivatives, corporate finance and financial management professor. He is passionate about the stock market and providing independent fundamental research and hedge fund and insider trading-focused investigation.

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