Hedge Fund Tracking: Atticus Capital's 13F (Timothy Barakett)

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's here)

Atticus Capital is a $13 billion hedge fund ran by Timothy Barakett. In 2005, Atticus' funds were up a combined 45%. And, they finished well over 30% for 2006. Barakett founded the firm at age 26 in 1995 and focuses on taking large, concentrated positions in companies. One of Atticus' most famous investments was Phelps Dodge, a miner which was bought out by Freeport McMoran (FCX). At one point, Atticus owned more than 9% of Phelps. And, they continue to hold their position in what is now the combined FCX. Barakett received his BA in Economics from Harvard and his MBA from Harvard as well. Its very evident that Barakett employs macro based investment theses. Once he has decided on what the trend is, he will find the best company within that trend and he will place a big bet. And, when needed, he will step in and take an activist role, ensuring the company is performing to his liking. And, much more often than not, he wins.

I love covering Atticus simply because their investment style is the most similar to mine that I have found thus far, in terms of hedge funds. (Well, minus the activist part since I'm a measly retail investor haha.) I will be detailing the changes to Atticus' portfolio as referenced in their latest 13F filing, which shows the portfolio changes they made last quarter. I won't be going into as much detail on Atticus as I have on the ex-Tiger Management funds (Lone Pine, Blue Ridge, Maverick) simply because Atticus has fewer, more concentrated positions. So, I'll cover the major moves and give the jist of what's going on in their portfolio. Just remember that this is by no means all their positions; they have some more, but they are literally tiny positions. With Atticus, you want to be placing your money with their big bets. These are just the bigger/notable moves that they made.

New Positions:
AngloGold Ashanti (AU) 918,000 shares
Newmont Mining (NEM) 1,022,400 shares
Visa (V) 7,799,500 ipo shares

Added to:
Genomic Health (GHDX) increased by
Goldfields (GFI) increased by

Reduced Positions:
CSX Corp (CSX): sold out of all their CSX shares, and sold half of their CSX calls.
Freeport McMoran (FCX) Shares: reduced from 16,393,273 shares to 11,523,563 shares
Freeport McMoran (FCX) Calls: reduced Calls position from 10,014,400 shares through calls to 2,214,900 shares through calls
Mastercard (MA) Shares: reduced from from 4,093,290 shares to 3,621,683 shares
Mastercard (MA) Calls: reduced Calls position from 1,594,600 shares through calls to 194,600 shares through calls
Norfolk Southern (NSC) Shares: reduced from 5,634,016 shares to 1,921,900 shares
Norfolk Southern (NSC) Calls: reduced Calls position from 203,600 shares though calls to 0 shares through calls
NYSE (NYX) Shares: reduced from 15,261,911 shares to 13,955,540 shares
NYSE (NYX) Calls: reduced Calls position from 7,251,400 shares though calls to 0 shares through calls
Occidental Petroleum (OXY): reduced from 9,428,982 shares to 7,414,900 shares

Removed Positions:
Inverness Medical (IMA)
Monsanto (MON)
Moody's (MCO)
Praxair (PX)
Research in Motion (RIMM)
Verisign (VRSN)

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Breakdown: Alright, so after checking out the major moves from Atticus' portfolio, its very clear to see that Barakett is putting big bets on gold through the miners themselves. It appears as if they were taking profits from their long held Phelps Dodge (now FCX) and applying that cash to pick up and add to other miners. The weird thing here is that FCX, although their name has "Gold" in it, is mainly a copper producer. These other miners they added are mainly gold miners. So, since we cannot see commodity holdings through the 13f's, I would bet that Barakett owns some gold. Because otherwise, his choice to play this thesis through the miners baffles me, because he is exposed to the company specific risk. He has protected himself somewhat by diversifying amongst the miners, spreading his risk around. But still, a puzzling move to me. While I agree that the US faces heavier inflation fears than construed by many, his bet on the miners is taking some time for me to digest. I do not see the Gold etf GLD in his portfolio, so I would guess that he owns some of the actual commodity. That is, unless, he sees something completely different in the miners themselves. Clearly though, he was buying the dip in gold. And, although he takes some profits in FCX, it still continues to be the fund's #1 holding. Note though, that his position size in these miners pales in comparison to his various other top fund holdings, ie: the gold miners are not massive holdings in his portfolio, save for FCX, which is a copper play anyways, so there's a difference.

They got their hands on a massive allocation of Visa (V) ipo shares, and so that has undoubtedly paid off. I'm sure they will sell a little bit to take some profits, but hold the vast majority, as they have done with Mastercard (MA). It is very apparent that Barakett is a big believer in MA's global presence and expansion. He sold a little MA, but again, not substantial enough to be more than profit taking. After all, MA is up huge. V fits right in there with that same thesis so it makes sense for him to add in mass on the ipo where he got the shares dirt cheap (damn you!). His position in MA is worth twice as much as his position in V (in $ value). Look for him to possibly even add even more V on any dips.

What I haven't necessarily detailed here is Atticus' massive position in the rails. Although they sold out of most of their CSX, they have absolutely HUGE positions in BNI and UNP (in fact, they are the fund's #4 and #1 holdings respectively). So, they have slowly but surely traded out of CSX over the past few quarters in favor of BNI and UNP. No surprise here, as almost every smart guy on wall street is in big on the rails.

Ahh NYSE (NYX), good ole NYX. This is a pretty massive position for Atticus, still in the top 10 of holdings even though they've been selling some off. As a recent shareholder myself, I know the pain they must be feeling. The thesis behind investing in NYX makes perfect sense and I'm right with Barakett on it. But, it seems as if this is going to take much longer to play out than he has imagined. He's been reducing his position size a little bit to reduce his risk, considering he must have been taking quite a big hit from this position. We'll see if he has dwindled it down even further next quarter. If that's the case, it might be time to re-evaluate NYX as there might be fundamental problems with this name.

Barakett continues to play oil through Conoco Philips (COP) and Occidental Petroleum (OXY). Although he sold off some OXY, he still has a pretty large position. I would guess he was just taking profits in that name, as it is up pretty significantly. His position in COP is larger anyhow.

Other odds and ends worth pointing out is Atticus' tiny position in Clean Energy Fuels (CLNE). Sound familiar? Yep, this is Boone Pickens' company. And, Boone Pickens' BP Capital has a pretty hefty position in his own company too. Just thought that was interesting. Also worth noting is that Atticus has a pretty sizable stake in Crown Castle (CCI). I was puzzled as to why Maverick Capital had sold out of their CCI last quarter, but its reassuring to see Atticus still holding a large position in it. Having done more research on it over the past week, it really makes sense to me as an investment and I really am dumbstruck as to why Maverick sold it off. Also, just like practically every other well known hedge fund, Atticus holds decent positions in all 3 of the major Brazilian banks: Unibanco (UBB), Banco Bradesco (BBD) and Banco Itau (BBD). Typically, it seems that most hedgers have bigger bets on ITU and BBD. But, Atticus is the inverse in that their position in UBB is the size of their position in BBD and ITU combined. These are three of the staples for any Brazilian index fund. And, with good reason. These names are very compelling due to their positioning in a blossoming Brazilian financial scene. I haven't been in these names ever since I sold out to take profits, but am definitely at looking to get back in. I'm invested in a Brazilian index fund for my retirement account, but I need more Brazil exposure in my macro investment account.

The main thing that strikes me overall about Atticus' portfolio is the conviction with which Barakett invests in the trends he really believes in. His portfolio has either a tiny stake in the stock, or a massive stake in the stock, hardly much in between. There are only a handful of names in his portfolio that fall in the "in between" category. And, this is after the fact that I've taken into account that the sectors he's bet big on have appreciated a lot in value. Even after subtracting what I gauge to be "fair profit" in those names, his original positions in those names are still among the largest in his portfolio. So, the argument that they are his largest holdings due to their large appreciation is a non-factor. He's got massive bets on in payment processing, precious metals/mining (FCX), oil, and the rails. I'll be keeping a close eye on which of the "smaller" holdings suddenly become elevated into a large holding. Because when that happens, Barakett has come to his next macro conclusion and will have acted swiftly.

Personal Favorites out of Atticus' Portfolio: MA, V, OXY, FCX, (NYX - even though its a death trap), UBB, ITU, BBD, CCI

Most interesting moves: Using some profits from FCX to load up on various gold/precious metal miners. I've never thought the gold miners themselves to be that great of investments. I only like FCX so much because its not really a gold company, they're much more of a copper and molybdenum story. Selling completely out of RIMM was also interesting... I'm sure he'll be back once those shares come crashing down again. But, he still has a decent sized position in Baidu (BIDU) for 'tech' exposure.

Note, of their positions, I'm long: MA, V, OXY, FCX, NYX, BNI

Names I want to research further: CCI, BBD, ITU, UBB, PAC

Look out in the coming days as I wrap up the hedge fund coverage with a few last 'notorious' funds and whales.

Wow...

So, fresh off my post about owning MA and V as your play on financials, I receive this chart... what timing! Barry Ritholtz over at Big Picture has a nice graph (seen above) of banks that have accessed the fed's discount window. As you can see, this year has been record setting to say the least in terms of banks needing help. So, what's next? Implosion? Just another reminder as to why I want to avoid the financials in general and stick to best of breed in the space if you really feel the need to be in there. Some of these companies' balance sheets are giant mysteries, and Lehman (LEH) scares the crap out of me right now with all their level 3 assets or whatever. Click on the graph to enlarge it and get an up close and personal view of how "well-run" our banks are at the moment.

Why the only "financials" you need to own are Mastercard (MA) and Visa (V)

I love it when the media (especially those yaks on cnbc) always ask "Is now the time to buy the financials?!?!" Personally, I steer clear from most of them, except for a revered few. And, they don't even really count as true 'financials.' I'm talking about Mastercard (MA) and Visa (V). I want to preface this by saying that by no means do I recommend jumping into these names right now at these levels. They've had massive runs and undoubtedly are due for pullbacks. But, I just want to put it on your radar for when they eventually do pull back. I've been selling into the strength and only have a little bit of each left and am dying for a pullback to load up on these names. I'm starting to feel empty inside because I can't have full positions in these dominant companies haha.

(Side Note: Now, don't get me wrong, there are 2 ACTUAL financials that I like, US Bank (USB) and Goldman Sachs (GS). USB because of the strong 5% dividend and solid dividend growth, as well as a pretty cautious management team. They seem to have weathered the majority of the storm in terms of the credit crisis/housing woes, and the stock mainly trades sideways. So, I just pocket the dividend and write some covered calls on that badboy to create some nice cashflow. Treat this name almost like a CD or a high yield savings account (but higher yielding). GS, on the other hand, is by far the best of breed investment bank and they get dragged through the mud with the other banks due to guilt by association. In the long run, look for them to distance themselves from the pack and truly outperform. Look to really load up on shares around $160 or even $150 if it trades that low. GS and USB are the only "true" financials I touch with a ten foot pole.)

The main thing that prompted me to post about MA and V has been SunTrust's analyst coverage of the names. Normally, I don't pay much attention to analyst estimates because half the time the analysts are wrong. But, I pay attention to these calls solely because time and time again, SunTrust has been ahead of the pack (and rightly so) in terms of realizing the true revenue that MA and V can grow. Notable Calls has been right on the money by flagging this for their readers. SunTrust now has a street high estimate for MA 2008 and 2009 EPS. Last week, SunTrust raised fical 2008, 2009, and 2010 EPS estimates for V. For V, they raise 2008 estimates from $2.04 to $2.11, 2009 estimates from $2.69 to $2.96, and 2010 estimates from $3.55 to $3.82. As you can see, these are pretty substantial boosts. Then they come right back this week and raise MA's estimates even higher. They boosted MA's 2008 estimates from $8.68 to $8.94 and 2009 estimates from $11.08 to $12.17. Once again, a pretty notable increase. SunTrust suggests that MA could see sustainable EPS growth of at least 20%, which is huge. The overall belief is that MA and V are seeing pricing power in their industry niche of payment processing with no credit risk. They have operating leverage (and are continuing to reduce operating costs) and are seeing massive volume growth. Voila - my investment thesis all along. Suntrust has an argument for those who say MA and V are rich in valuation now: They believe that this is due to the fact that analyst estimates are simply too low and flat out unrealistic.

This reminds me of the exact situation that has been occurring in the fertilizer segment of the agriculture trade. Analysts simply have too low of estimates and these companies are actually trading at much cheaper multiples than we think. 6 months later in the fertilizer game and analysts are STILL playing catch-up. Now, I don't think MA and V are seeing the kind of secular growth explosion that MOS or POT are obviously; but, at the same time, I definitely agree that analyst estimates are too low on MA and V and there is a secular trend building. SunTrust is the only analyst I'll follow on this group simply because they are leading the pack of analysts right now and until the others play catch-up, SunTrust is the only bank out there who "gets it." Through my time in the markets, I've found that certain analysts in each sector are just flat out better than others (surprise, surprise), and you've got to find those analysts and only listen to them. Listening to the others is just a truckload of garbage and noise. So, SunTrust is way ahead of the game here and look for others to follow suit once they crunch the numbers and take a look at what is really happening in the world of global payment processing and realize that their estimates are way too low.

The phrase "global payment processing" is all you really need to know about these companies. They are global stories and most of the growth is occurring away from American shores. Despite an economic slowdown/recession in America, MA and V continue to see huge revenue growth due to international consumers' willingness to use plastic rather than cash. The slowdown in spending from American consumers is not even a chink in the armor of these guys. Think of the rest of the globe as Americans 10 years ago. Eventually, everyone gets used to using debit/credit cards and starts carrying less cash. I can't underscore this point enough. The international opportunity for these names is huge. If they can get consumers in other countries to use their cards even HALF as much as American consumers, they will see record numbers.

Plain and simple, MA and V are payment processors who bear ZERO credit risk. If you want some credit risk, you can always go with some American Express (AXP), if that's your cup of tea. I can see the appeal there, and so does Blue Ridge Capital (seeing as they really loaded up on shares of AXP last quarter). But, I prefer MA and V due to the sheer volume of cards they have in consumers' hands worldwide. I want to stress again that I usually do not pay a ton of attention to individual analyst estimates. But, when you see a firm come out with street-high estimates, constantly leading the pack of analysts, it gets your attention. I think these guys are right on the money and that's why I wanted to point it out. They've been talking my investment thesis in these processors all along. Oh, and did I mention that Lone Pine Capital has a pretty hefty position in MA and V, as detailed here.

Disclosure - long MA and V at the time of writing, but have been selling into strength lately. Looking for a pullback of any size to really begin to add. Keep these names on your radar.

Maverick Capital's 13F (Lee Ainslie)

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's here )

Lee Ainslie started Maverick Capital back in 1993 with $38 million. Nowadays, the fund is worth $10 billion, so you can already see the track record he's established. Ainslie, like many of the other fund managers I've profiled, has a background rooted in learning from legendary great Julian Robertson at Tiger Management. So, due to the fact that these proteges learned from the best and have had great success running their own funds, I continually try to find a reason NOT to follow these funds. And, needless to say I'm never successful. Time to learn from the greats! Some of my contacts over at Maverick have explained to me that their strategy is straight up stock picking, both long and short. They made it clear though, that they do not employ pairs trades. Although, some of their long/short setups might be in the same sector. They try to hedge their positions like a true hedge fund by picking out the shining stars in certain sectors, as well as identifying the pieces of garbage. Now, of course, this presents us with a problem in that the 13F filings only show long positions (unless they're holding puts on a name, we can see those). So, a good amount of Maverick's portfolio (the entire short side) is unbeknownst to us, because they have reported zero put positions. But, let's look on the bright side in that we can see all their long positions. Maverick uses a value approach (obviously learned from Julian) and one of their most popular metrics is finding companies and comparing their enterprise value to sustainable free cash flow. So, now that we've got a little background on Maverick, let's see what they were up to. Rumor has it that they had a poor start to the year, and they were definitely out switching things up in mass in their portfolio.

New Positions: (in no particular order)
American Capital Strategies (ACAS) 581,590 shares
Bankrate (RATE) 100,100 shares
BonTon Stores (BONT) 57,000 shares
BPW Acquisitions (BPW) 2,000,000 shares
Citrix Systems (CTXS) 4,007,280 shares
Crocs (CROX) 515,389 shares
Discovery Holdings (DISCA) 6,063,297 shares
Dish Network (DISH) 5,977,630 shares
Infinera (INFN) 2,524,117 shares
JPMorgan Chase (JPM) 4,745,330 shares
Liberty Media Corp (LMDIA) 5,726,736 shares
Loews (LTR) 2,297,358 shares
Nordstrom (JWN) 4,386,874 shares
Sears (SHLD) 848,724 shares
Starbucks (SBUX) 12,512,559 shares
Wyeth (WYE) 4,282,850 shares

Added to:
Advanced Micro Devices (AMD) increased by 12% (3,956,220 more shares)
Amylin (AMLN) increased by 28% (544,550 more shares)
Apple (AAPL) increased by 3.6% (80,965 more shares)
Autozone (AZO) increased by 99.8% (1,005,200 more shares)
Avon Products (AVP) increased by 82% (2,863,320 more shares)
Bank NY Mellon (BK) increased by 24% (1,174,155 more shares)
Baxter (BAX) increased by 38.5% (930,840 more shares)
Burlington Northern (BNI) increased by 151% (1,007,490 more shares)
Cardinal Health (CAH) increased by 12% (350,230 more shares)
China Nepstar Chain Drugstores (NPD) increased by 68.5% (960,605 more shares)
Cognizant (CTSH) increased by 3.6% (181,168 more shares)
Covidien (COV) increased by 57% (1,483,210 more shares)
Cypress Bioscience (CYPB) increased by 123% (1,458,064 more shares)
Direct TV (DTV) increased by 25% (1,438,140 more shares)
Fidelity National Info (FIS) increased by 41% (1,286,091 more shares)
Google (GOOG) increased by 49% (98,722 more shares)
Hanes Brands (HBI) increased by 37% (896,563 more shares)
Home Inns & Hotel Mgmt (HMIN) increased by 28% (633,753 more shares)
Leap Wireless (LEAP) increased by 19.5% (217,011 more shares)
Lumber Liquidators (LL) increased by 7% (147,720 more shares)
Marsh & McLennan (MMC) increased by 13.6% (888,850 more shares)
MetroPCS (PCS) increased by 32% (1,032,857 more shares)
Mylan (MYL) increased by 52% (3,463,006 more shares)
Nucor (NUE) increased by 19% (307,337 more shares)
Research in Motion (RIMM) increased by 179% (2,174,226 more shares)
Resmed (RMD) increased by 11% (186,168 more shares)
Salesforce (CRM) increased by 63% (818,010 more shares)
Sandisk (SNDK) increased by 7% (399,180 more shares)
Textron (TXT) increased by 31% (988,240 more shares)
UnderArmour (UA) increased by 81% (1,622,662 more shares)
United Health (UNH) increased by 31% (832,673 more shares)
VMWare (VMW) increased by 5% (60,000 more shares)
Zimmer Holdings (ZMH) increased by 36% (623,610 more shares)


Reduced Positions:
America Movil (AMX) reduced by 34.5% (1,907,040 less shares)
Berkshire Hathaway A (BRK.A) reduced by 43.5% (635 less shares)
Berkshire Hathaway B (BRK.B) reduced by 22.8% (3,687 less shares)
Corcept (CORT) reduced by 8.5% (128,480 less shares)
Cumulus Media (CMLS) reduced by 21% (526,311 less shares)
Gamestop (GME) reduced by 14.6% (676,378 less shares)
Genentech (DNA) reduced by 9% (150,290 less shares)
Gmarket (GMKT) reduced by 56% (308,037 less shares)
Harmonic (HLIT) reduced by 10% (574,361 less shares)
Lexmark (LXK) reduced by 49% (2,161,513 less shares)
Marvell Tech (MRVL) reduced by 3% (551,916 less shares)
Monsanto (MON) reduced by 11% (190,570 less shares)
Office Max (OMX) reduced by 22% (1,464,249 less shares)
Potash (POT) reduced by 11% (123,790 less shares)
Qualcomm (QCOM) reduced by 37% (3,851,237 less shares)
Raytheon (RTN) reduced by 19% (861,290 less shares)
Suntrust (STI) reduced by 54% (1,194,028 less shares)
ThermoFisher Scientific (TMO) reduced by 33% (1,782,100 less shares)


Removed Positions:
Positions Maverick sold out of completely
Altria (MO)
Atheros Comm (ATHR)
Biogen Idec (BIIB)
Burger King (BKC)
Crown Castle (CCI)
CVS Caremark (CVS)
Digital River (DRIV)
Echostar (SATS)
Five Star Quality Care (FVE)
Guess (GES)
Healthnet (HNT)
Macys (M)
Men's Warehouse (MW)
Merck (MRK)
Omnicare (OCR)
Wellpoint (WLP)
Wyndham (WYN)
Yahoo (YHOO)


Positions with no change:
Bluefly (BFLY)
Cnet (CNET)
First Advantage Corp (FADV)
First Marblehead (FMD)
Gilead (GILD)
Move Inc (MOVE)
Newstar Financial (NEWS)
Palm (PALM)
Trubion Pharma (TRBN)
Ultra Clean Holdings (UCTT)
Vivus (VVUS)
Western Union (WU)


Top 10 Holdings by % of Portfolio:
1. RIMM (Top holding)
2. AAPL
3. QCOM
4. AVP
5. BK
6. GILD
7. GME
8. RTN
9. AMX
10. TXT



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Breakdown: Alright, so right out of the gate the first thing I noticed was Maverick's heavy tech weighting, much like fellow Tiger Cub funds Lone Pine and Blue Ridge. Maverick's top 3 holdings are all tech in RIMM AAPL and QCOM. And, Maverick even reduced their QCOM position by almost 40% and its still the #3 holding. I'm sure given the big run tech has had lately (especially AAPL), that Maverick will show some profit taking next quarter in the next round of 13Fs. They just clearly loaded up on tech on the big dips, and they've profited quite handsomely from that play it seems. Ainslie added to Avon Products (AVP) by 82% and brought it up to the #4 fund holding, which is a strong move. Ainslie also added heavily to Autozone, increasing it by almost 100%, and bringing it to a notable 11th largest fund holding. Also, he added Bank New York Mellon by 24% and it sits at the fund's 5th largest holding. Maverick clearly wants to play the financial space through BK and then also JPM, which they also added as a brand new holding this go round. And, they added in mass too, with a whopping 4.7 million shares. Take a closer look at those two if you want financials exposure. Ainslie also started a pretty decent sized position in Citrix, who specialize in IT and the such. I would say they were trying to play the VMWare trade through the backdoor, but they already have VMW in the fund as well. Another new addition to the portfolio this go round was Wyeth, which they added a strong 4.2 million shares of. Also, it seems like Ainslie added SBUX as well, buying on the dip when Schulz came back. We'll see if they still hold those shares in the next quarter.

In terms of further adding to positions they already owned, Maverick really loaded up on BNI, a whopping 151%. And, keep in mind, that stock has already made a monster move, so they weren't exactly getting those shares on the cheap. They clearly believe the move in the rails has more juice. They also added in mass to Cypres Bioscience by 123%, showing conviction in that buy as well. One play that they continue to quietly amass is satellite plays. DTV they increased by 25% and they've been building a position over time. They also started a brand new position in Dish Network, so they've got all their bases covered. I'll definitely be checking into that theme further as Maverick seems to firmly believe in it, despite a recession. They also added GOOG to their tech basket by 41%, but its still *not* a top 10 holding in the fund. Ainslie clearly prefers hardware in tech. They also continue to add to Mylan quarter after quarter (increased 52% this quarter), so that's one I'm keeping my eye on as well. One move I'm not so sure of is them adding to UA by 81%. I think this stock has real issues as they've lost their "mojo" after first storming onto the scene. We'll see how that plays out and see if they add even more shares in the quarters to come. Half the point in tracking these 13f's is to see where these funds are accumulating shares on a quarterly basis, so we can play catch-up with them and load up on positions ourselves that these funds strongly believe in. Some stocks they buy and sell and they are in and out. Others though, you can see them slowly adding each quarter, building core positions. Those are the ones you want to look for. Also, keep an eye out for sector trends (such as satellite tv in Maverick's case). They are clearly buying up all satellite players and must believe strongly in that space.

Turning to the reduced positions, I noticed that they've reduced their stakes in both BRK.A and BRK.B. Clearly they aren't seeing as much value in Buffett anymore. Or, maybe they were just freeing up cash. As, after all, if the rumors of Maverick's poor start to the year were true, then they needed to free up some cash to re-tool their portfolio. I mentioned earlier that they reduced their QCOM position by 37%, and yet it is still the 3rd largest fund holding. That amazed me; they've really bet big on this name. I attribute this sell to some profit taking and some freeing up cash to re-work the portfolio. After all, its still a massive holding and they've sold off more than a 3rd of the position. Raytheon (RTN) was also reduced by 19% and yet it is the fund's 8th largest holding. So, not a whole lot to worry about there either.

Maverick sold completely out of some of their bigger and longer term holdings in that of CVS Caremark and Burger King. They also sold out of Echostar (SATS) and it seems they prefer DTV and DISH in the satellite space. Actually, it looks like they swapped completely out of SATS and into DISH. Another semi-big holding they sold out of was Guess. Then some smaller holdings of fellow retailers Macys and Men's Warehouse were sold off as well. It seems that Maverick must have taken a real beating with all of these retailers and that probably played a large part in their rumored weak start to 2008. They've clearly admitted they were wrong on those and sold them off completely in search of better sectors. One removal I was confused about was Crown Castle, as their investment in the wireless tower industry seemed to be a smart one. But, now that they've sold out, its time to revisit that name and make sure nothing is fundamentally wrong with it. Maybe Maverick needed the cash after their bad beginning of the year, maybe they were taking profits in the name, who knows. But, I strongly believe that the wireless tower play was a smart one and I'm going to look into it deeper, as the future is obviously in wireless technology.

Not a whole lot to look at in terms of positions with no change. They kept their GILD position unchanged as the fund's 6th largest holding. They held their CNET as well, and I'm sure they've actually sold it off now that the stock has popped immensely on its takeover news. Like fellow Tiger Cub manager John Griffin at Blue Ridge, Ainslie and Maverick have a position in First Marblehead. Maverick didn't quite add in mass like Blue Ridge did... but then again maybe Blue Ridge was playing catch-up. As I've said earlier, there are usually some commonalities between the portfolios of all the ex-Tiger Management gang. They undoubtedly still keep in touch and share their good ideas and then swarm them in mass. So, identifying the names that all of the funds hold collectively could create quite a killer portfolio. I'll actually be developing a model portfolio later based on the consensus ex-Tiger Management funds (ie: a portfolio of stocks that appear in all 3 funds' portfolios: Maverick, Lone Pine, and Blue Ridge). Now that I've covered the 3 major proteges of Julian Robertson, I can sift through the data to find all the commonalities and create a mock modern day Julian Robertson-esque Tiger Management portfolio to track.

Personal Favorites out of Maverick's portfolio: AAPL QCOM GILD AMX BNI TMO POT AMLN MYL DTV RMD

Most interesting move(s): 1. Bringing Avon Products up to the #4 fund holding 2. Doubling down on Autozone and making it the #11 fund holding 3. Substituting DISH in place of SATS 4. Seemingly shifting out of most of their retail plays (including selling off their entire huge chunk of CVS) 5. Continuing to slowly build positions in RMD, DTV, and MYL

Note/ Of their positions, I'm long: AAPL QCOM GILD AMX TMO POT

Names I want to research further: CCI DTV DISH MYL RMD

Keep an eye out for continued hedge fund 13f tracking when I cover Greenlight Capital (David Einhorn), Atticus Capital (Timothy Barakett), and a few other big funds/whales.

Some Portfolio Updates

*Before I get to the portfolio updates, just wanted to let everyone know that the hedge fund 13f tracking series is by no means finished. I was just on vacation for the long weekend and haven't had time to finish up the research. Sorting through those 13F's and comparing them line by line is quite tedious haha. Look for posts covering Maverick Capital (Lee Ainslie), Greenlight Capital (David Einhorn), Atticus Capital (Timothy Barakett), and more in the coming days. Just need to get this portfolio update out of the way first.*



Long overdue for a Portfolio update. First, let's start with Mosaic (MOS). I've been a big fan of the fertilizers due to their global pricing power (ideal short supply and huge demand conditions). I've been scaling in and out of them ever since August 2007, taking profits and buying the dips along the way, revolving around a core position. I usually play the space through both Potash (POT) and Mosaic (MOS) because POT is best of breed, and MOS is the up and comer with better valuation. I usually enter investments in fourths so I buy 25% of my overall position in one round, then another 25% and so on. Currently, I've got 1/2 a position in POT right now but I only had 1/4th a position in MOS, that is until yesterday when my limit order at $115 hit and now i've got 1/2 a position in MOS. Now, this was a limit order set from a while ago that I lined up to coincide with the 50 day simple moving average. But, let me go over why entering MOS here would be a good idea, even with its dip below the 50 day ma. First, looking at the chart we see that of course it has touched the 50 day ma and this has been an excellent buying opportunity in the ferts whenever they pullback this far. If you look at the chart you'll see that each touch to the 50day ma has been a buying opportunity. And, notably, each touch has actually broken below the 50 day, only to sharply rebound right back above it and begin its trend higher. So, this is why the fact that it broke the 50 does not bother me: MOS seems to always do that and the buyers always come in. Secondly, look at the Full Stochastics at the very bottom of the chart. You will see that we are now in oversold territory and the stochastics have turned back up, indicating a bullish future. Look at all the other times that the stochastics have entered oversold territory (reading 20 or below). Every single time the stochastics point to oversold, MOS has rebounded for a trade at the very least, if not continuing its run higher. Lastly, looking at the RSI at the top of the chart shows us that everytime MOS sees an RSI reading of 50 or below, buyers have come in. And, yet again, buyers dipped into MOS. So, the chart really tells the story in MOS. Watch the moving averages for support, watch the full stochastics for oversold conditions (20 or below) and watch the rsi for a buying signal (50 or below). As long as MOS hits some of these conditions without massive volume, step in and pick up part of your position. If it shows heavy volume on the decline though, stay away as it probably indicates distribution and further downside.



Next up, just wanted to mention that I added Walmart (WMT) on the pullback to the 50 day moving average as well. I've been VERY patient on this one, waiting for a pullback for a nice entry. Obviously waiting for a pullback to the 50 day moving average is always a smart idea, as this level typically serves as a support level for uptrending stocks. You'll notice on the chart that smaller pullbacks have occurred along the way the past few months, but we finally got a pullback of real size and so I pulled the trigger. Notice also how the stochastics on the very bottom of the chart point to oversold. Look to other times that the stochastics crossed down around the 20 level and you will see they pointed to excellent buying opportunities in this name. This is the primary oversold indicator I use and it has served me well. Not to mention, WMT has been so strong lately that it has rarely dipped below 50 on the RSI. And, every time it has, its been a buying opportunity. We just got one, so that was yet another buy signal screaming at me. So, both the RSI and stochastics were at the lower end of their ranges and started to turn up, signaling bullish future. Combine that with the touch of the 50 day moving average and I'm more than happy to add some WMT.

Its obvious that in a recession/tough times/era of high gas prices, that consumers will hit the discount retailers more frequently. And, WMT is a one stop shop for all their needs (including gas at some Sam's club locations). So, the thesis for this play is really simple. People are living cheaper due to tough times and the only places for them to go are COST or WMT and WMT to me simply has greater exposure and offers you both the pure discount shop in its Walmart stores, as well as the bulk item membership version Sam's Club. So, I chose WMT over COST mainly for this reason, and also because just chart-wise its much healthier looking than COST. And, believe it or not, the final decision maker was just stepping into Walmarts over the past few months. They are ALWAYS packed, no joke. I even stepped inside there on a Friday night at 11:00pm to pick up some mixers before heading out and the place was absolutely packed. My jaw practically dropped. I knew it was a busy place, but even at 11pm on a friday night?! That sealed the deal for me. Target (TGT) wasn't even an option for me simply because I've been in a few Targets over the past few months as well and they are ghost towns compared to WMT. Not to mention, they aren't "cheap" in a sense like WMT and COST. TGT is a discount retailer sure, but I want the cheapest of the cheap in this kind of environment. I don't care how clean Target's stores may be, I'm focused on the pricing offered and the foot traffic. WMT ftw (for the win).




Lastly, I wanted to touch on DRYS. I "twittered" (see widget on upper right of the blog) that I sold the last of my DRYS off last week, as it had a monster run and started to see sellers coming in. However, yesterday I got right back in despite seeing heavy volume distribution in the name. Firstly, you'll notice on the chart that DRYS has had a monster run yes, but it has also had a monster pullback in the span of 1 week. Shares sat around $86 and were calling my name. Look at early February and see the recent peak of around $85 and then look at where DRYS is right now, sitting smack dab right on past resistance/now future support. So, knowing that DRYS had hit support on its pullback, I started a teaser position up in the name again because it had simply seen too much selling. The stochastics once again helped me in this decision as they had gone from overbought (around 80) to oversold (around 20) in the matter of a week's time. So, the stochastics signaled a buy, DRYS was sitting on support, and it had seen a massive sell off in only a week. I figured at the very least it was worth a trade, and I was right. DRYS popped 9% today (Wednesday 28th). But, don't get me wrong, I like DRYS as an investment here due to a few reasons. 1. They just reported great earnings a few weeks ago and the Baltic Dry Index wasn't even at all time highs. 2. Since that earnings report, the Baltic Dry Index has been screaming higher, meaning DRYS can charge higher rates on the spot market 3. DRYS operates a ton (practically all) of their rates on the spot market, so they will have an absolutely monster quarter to report next go-round. But, I must urge you to proceed with caution with this name. As you can see from the chart, its very volatile (just like the Baltic Dry Index) and you've got to keep a close eye on things to make sure you don't get shredded to bits. Keep an eye on the BDI to make sure DRYS is still cranking out high rates. Also, monitor the ships' availability, as there has been a shortage of ships lately. The heavy volume on the pullback showed signs of distribution I'm aware of that, but the sector has strong underlying fundamentals right now and saw a massive sell-off due to profit taking from the massive run-up in the first place. The strong volume today as DRYS ran right back up is positive as buyers returned with force. Look to trade this name at the very least, if not invest in it for the next quarter or so, as DRYS will really benefit from high spot rates.

Lastly, I just wanted to give a run-down of my overall portfolio. This blog details the occurrences within my main investment account, as well as my short term trading account. My investment account has anywhere from 15-20 stocks/etf's in it with a slightly longer investment time frame (anywhere from 3 months to years) and I scale in and out of positions, taking profits when I deem fit, and scaling back in on dips. My other account is for shorter term trades (1 day, 1 week, 1 month) and typically only holds 1-5 names at any given time. I set up this blog with the goal of providing complete portfolio transparency through Portfolio updates like these, and live trade updates with my Twitter widget in the upper right hand corner of this blog. That way I can outline my investment theses and get feedback from others. So, by all means feel free to bash my portfolio, make helpful suggestions, or just straight up question my decisions. Any and all comments are welcome, as I love outside input to make myself sure that I am in the right names for the right reasons.

Long Positions as of Weds May 28th in no particular order: AAPL (slowly taking profits as we near $200), QCOM, MA (been selling, waiting for a meaningful pullback to re-add), V, GS (just added), USB (writing covered calls on it & picking up the 5% dividend), RSX (Russia), ILF(Brazil/Mexico: AMX, FMX, BBD, ITU), TTEK (Water/Wind, courtesy of @jmclarty who initially brought this one to my attention), ETR, NLR (been taking profits), BIIB, GILD, ACI (wishing for a big pullback to really load up), POT, MOS (just added more on pullback), UNG, CHK, WMT (just added on the pullback), TMO, SDS (hedge: ultrashort s&p)

Short Positions: COF (covering the last of it though)

Watchlist: I've owned some of these names before, but waiting for pullbacks to get back into MEE, FLR, FWLT. Want to start a new position in MIL as well... waiting.

I've probably left out a few names but that should sum it up.

Blue Ridge Capital's 13F (John A. Griffin)

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's HERE.)

Alright so now we're cruising through these hedge funds having already covered Steven Mandel's Lone Pine Capital and Boone Pickens' BP Capital. Next up, we have one of my personal favorites: Blue Ridge Capital ran by John A. Griffin. Now, Griffin is similar to Mandel/Lone Pine in that he too is Tiger Cub aka pupil of Julian Robertson at Tiger Management. However, there is one difference between Mandel and Griffin; Griffin was Julian Robertson's right hand man, while Mandel was merely an analyst (right, "merely," look where he is now haha). So, needless to say, the dude knows his stuff. Blue Ridge seeks absolute returns by investing in companies who quite simply dominate and shorting the companies who have fundamental problems. And, right off the bat that presents us with a bit of a problem in terms of analyzing 13F's. 13F's don't show short positions, they show long positions (unless the firm is short through puts, which we *can* see). So, the inherent problem with analyzing Blue Ridge (or any fund for that matter) is that we can't see the other side of their portfolio. But, this is increasingly important for Blue Ridge simply due to Griffin's investment strategy and the fact that his long positions could in essence only represent half of the portfolio. Now, I use that loosely because there's no way for me to know exactly how much of his portfolio is short. But, I do know that both Griffin and Lee Ainslie over at Maverick Capital (research on him coming later this week) like to effectively hedge with a balance of both long and short positions (like a TRUE hedge fund... not like some of these crazy funds these days with no true hedging). Here's the thing, they don't do pairs trades, so don't classify it as that. I remember specifically being told by representatives at Maverick that they don't pairs trade, even though a respective long and short could be in the same sector or sub-sector. So, make that distinction clear. But, we'll work with what we've got (and believe me, it's still a lot of solid info). Onto the 13F's!

The following is Blue Ridge Capital's current holdings as of March 31st 2008 as released in their most recent 13F filing with the SEC. I've compared the positions in this most recent 13F to last quarter's 13F and here's what the breakdown looks like:

New Positions:(in no particular order)
Apple (AAPL) 1,150,000 shares
Burlington Northern (BNI) 700,000 shares
Eagle Materials (EXP) 1,965,000 shares
Echostar (SATS) 1,906,000 shares
Federal Home Loan Mortgage Corp (FRE) 500,000 shares
Federal National Mortgage Assoc (FNM) 480,000 shares
Fidelity National Information (FIS) 1,470,000 shares
First American Corp California (FAF) 1,050,000 shares
Google (GOOG) 493,000 shares
MBIA (MBI) 2,500,000 shares
Millipore (MIL) 2,700,000 shares
Office Depot (ODP) 3,400,000 shares
Research in Motion (RIMM) 600,000 shares
SLM Corp (SLM) 1,130,000 shares
St. Joe Co (JOE) 645,000 shares
Wyeth (WYE) 3,500,000 shares

Added to:
American Express (AXP) increased by 167% (5,393,200 more shares)
Berkshire Hathaway (BRK.A) increased by 13% (98 more shares)
Compton Petroleum (CMZ) increased by 15.5% (890,400 more shares)
Fairfax Financial (FFH) increased by 50% (63,315 more shares)
First Marblehead (FMD) increased by 549%, no that's not a typo... 549% (1,154,500 more shares)
Fomento Economico Mexicano (FMX) increased by 103% (1,050,000 more shares)
Grupo Aeroportuario Del Paci S.A.B (PAC) increased by 53% (1,225,700 more shares)
Martin Marietta Materials (MLM) increased by 17.5% (235,800 more shares)
Netflix (NFLX) increased by 210%, not a typo either (1,377,700 more shares)
Packaging Corp of America (PKG) increased by 30% (958,264 more shares)
Starbucks (SBUX) increased by 19% (1,150,000 more shares)

Reduced Positions:
Broadridge Financial Solutions (BR) decreased by 2.2% (sold 161,501 shares)
Coach (COH) decreased by 38% (sold 1,440,000 shares)
Discovery Holdings (DISCA) decreased by 4.6% (sold 348,200 shares)
Formfactor (FORM) decreased by 25% (sold 295,000 shares)
Smurfit Stone (SSCC) decreased by 38% (sold 881,099 shares)

Removed Positions:
Positions Blue Ridge sold out of completely
Baidu (BIDU)
Domtar (UFS)
FedEx (FDX)
Gafisa (GFA)
Grace WR (GRA)
ishares TR Puts (IFGL Puts)
Level 3 Comm (LVLT)
Macys (M)
Mastercard (MA)
Microsoft (MSFT)
Microsoft Calls (MSFT Calls)
Novastar Financial (NOVS)
Nutrisystem (NTRI)
Pier 1 Imports (PIR)
Sears (SHLD)
Sterlite (SLT)
Teekay (TK)

Positions with no change:
America Movil (AMX)
American Express Calls (AXP Calls)
Corus Bank (CORS)
Covanta Holdings (CVA)
Crocs (CROX)
Elong (LONG)
Evergreen Energy (EEE)
Gold Reserve (GRZ)
Greenlight RE (GLRE)
Grupo Televisa (TV)
Indymac Bank (IMB)
Perfect World (PWRD)
Charles Schwab (SCHW)
Target (TGT)
Thermo Fisher Scientific (TMO)
Walmart (WMT)
Washington Mutual Puts (WM Puts)
Web MD (WBMD)

Top 10 Holdings by % of Portfolio:
1. AXP (Top Holding)
2. CVA
3. GOOG
4. MIL
5. TV
6. AAPL
7. SCHW
8. PAC
9. AMX
10. DISCA

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Breakdown: Alright lots to cover here. First major thing I noticed was Griffin selling out of MA entirely and seemingly replacing it with AXP. He beefed up his position in AXP by 167% and brought it all the way to the fund's top holding. So, clearly they wanted some credit risk to go along with the transaction processing. AXP offers the play on global transition from cash to plastic like MA and V, but they offer the added benefit/detriment (depending on how you look at it) of exposing themselves to credit risk as well. Many would argue that AXP has higher credit quality than that of say a COF or other banks of the like. But, my favorite way to play credit cards is still MA straight up. I can definitely see the play on AXP as well and don't get me wrong I like it, but I'm a big advocate of MA for pure transaction processing. So, considering numerous other Tiger Cubs (ex-Tiger Management funds) still hold MA, it was interesting to see Griffin be the sole person to completely sell off MA. Others merely took profits while he completely swapped out in favor of AXP. It will be very interesting come next quarter to see if any other funds in the Tiger family (Maverick, Lone Pine, Viking) added to AXP following Griffin and Blue Ridge's lead.

Second, just like Lone Pine, we saw Blue Ridge load up on tech, especially the titans AAPL GOOG and RIMM. Obviously all the old Tiger Cubs still keep in touch and share ideas and they all saw screaming opportunity in these names when they sold off hard. Griffin just started his position in GOOG and already brought it up to the 3rd largest fund holding, so he really loaded up. He also just started his position in AAPL and brought it to the 6th largest fund holding. So, as you can see, Griffin really likes these names and now is laughing at everyone who was selling at the lows while he was scooping those shares up in mass (both GOOG and AAPL up significantly since his pick up). So I expect him to obviously take some profits in these names come next round of 13F's, but I'm sure he will still hold a core position.

Thirdly, I noticed the Latin American theme going on. A lot of the ex-Tiger Management guys have been in AMX for a while so that was no surprise to see that still as a top 10 fund holding. However, what I noticed was Griffin slowly but surely building positions in other names. He added to FMX and increased his stake by 103%. He added to PAC by 53% and brought it to the 8th largest fund holding. And, not to mention, he's still got his big chunk of TV sitting as the 5th largest holding of the fund. So, Latin America is a big part of Blue Ridge's portfolio. And, he covers all industries. FMX with beverages, TV with television/entertainment, and PAC with airport service. (For the record, I love FMX and have for a while. I'll definitely be looking more in depth at those other two names.) So, overall so far we've got 2 themes, technology and Latin America.

The next major thing that quite simply confused me was Griffin adding FRE FNM FAF MBI as new positions. I'm not sure if he was screwing around with Fannie and Freddie and bond insurers because he was trading them or if he saw something that the rest of us don't (that wouldn't surprise me either). But, I've got to say that this move puzzled the hell out of me as I wouldn't touch any of those things with a 10 foot pole. But, it's there and he added them so take it for what its worth, but I have no idea how to explain that to you all. He also beefed up his position in FMD, an education lender by a whopping 549%. So, he wasn't messing around with these names, he was picking up shares in mass. Again, I'm not going to try and pretend to explain these moves because frankly bond insurance and the whole fannie/freddie complex makes no sense to me. I don't necessarily want to sit around reading hundreds of thousands of pages like Bill Ackman did in order to better understand the bond insurers, etc. So, there's the information, do with it what you will haha. But I'm not touching any of them.

This next addition really got me interested. In all the major funds I follow I've never seen this company in any of their portfolios: Millipore (MIL). And, Blue Ridge came in last quarter and started a position in it... and a massive one at that. Its the fund's 4th largest holding and it came out of nowhere. Millipore is a life science company and honestly I thought about adding it solely because Griffin came in and added it with such conviction. I'm doing more research on it now but definitely keep it on your radar. Griffin already has a solid maintained position in Thermo Fisher (TMO) to play the lab equipment side of things. I would not at all be surprised to see it in other funds' portfolios here come next quarter. Blue Ridge added a pretty massive position in this thing and I thought it deserved its own paragraph worth of mention.

Lastly, I just want to tie up a few odds and ends that are worth mentioning. Blue Ridge, much like Lone Pine, seemed to be closing out a lot of retail positions (reducing COH by 38%, removing M, SHLD, and PIR completely). But, what struck me as odd was that Griffin sold out of all these retail names, and then goes and starts a position in Office Depot (ODP). So, I was confused by that for sure. Maybe he saw some compelling valuations in ODP I'm not sure. Ex-Tiger buddy Lee Ainslie and Maverick Capital have a large position in OfficeMax (OMX) not the Depot, so that made me even more confused, as usually you will see similarities between their portfolios. But, Blue Ridge picked up some shares of the rival. I don't like either of these companies to be frank. ODP has a lot less debt, but is also trading at slightly richer valuations than OMX. Whaaaatever. Also, I noticed Griffin added to his SBUX a little bit, obviously on the news that Schulz would be back to shape things up in that slowing mammoth of a company. Next, I thought it was worth mentioning that Blue Ridge started a position in St Joe Co, a real estate development company. First off you've got Lone Pine starting a position in CB Richard Ellis (CBG - commercial real estate), and now you've got buddy pal Blue Ridge starting a position in JOE. Veeeery interesting. So, once again, something to watch in the coming months to see if other ex-Tiger funds start adding plays similar to these (or the exact same names). Again, I'm not touching these names as I think I can get much better return for my money in other sectors. But, then again, these guys are the hedge fund managers and obviously are a lot smarter than I. Next, I just want to point out that Blue Ridge sold out completely of their Nutrisystem (NTRI) position and at the same time last quarter Lone Pine added quite a large short position in NTRI through puts. So, if I was Mandel I'd probably have called up Griffin and said "hey yo I'm gonna short the shit out of NTRI so you might wanna wrap that position up... mmmmkay thanks bye." Ok, speaking of wrapping up, I want to highlight the fact that Blue Ridge has a measly 1 put position listed in their entire 13F... yup, just 1. Washington Mutual (WM) Puts. So, we get our tiny glimpse at what Griffin is on the short side of things with. Again, remember he is undoubtedly short a few/a lot of names in the fund but we don't get to see those on 13Fs. The only things we can see are long equity positions, call positions, and put positions. So, as I assumed coming into this: he is just straight up shorting rather than using puts. So, everybody go short the crap out of WM. Oh, wait, its already been driven down hard. Enter sad face here. And that's a wrap, thanks for reading.

My personal favorites out of Lone Pine's Portfolio:
AAPL MIL AXP FMX TV PAC AMX TMO WMT

Most interesting move(s):
1. Adding a boatload of technology and Latin American names
2. Adding Fannie/Freddie/MBIA/First Marblehead ........... ?!?!
3. Exchanging MA in favor of AXP by a lot. AXP = Fund's largest holding now
4. Adding Millipore (MIL) out of nowhere... and with conviction
5. Selling lots of retailers and yet starting a stake in Office Depot. what?!?

Note: Of their positions, I'm long AMX AAPL FMX WMT TMO
And names I will most likely be long after I finish research: MIL TV PAC

Tune in tomorrow when I examine (yet) another protege of Julian Robertson & the Tiger Management gang: Lee Ainslie's Maverick Capital.

Lone Pine Capital's 13F (Stephen Mandel Jr.)

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's HERE.)

The second hedge fund I'm covering in depth this week is Lone Pine Capital, ran by Stephen Mandel Jr. Lone Pine is an $8 Billion fund that has returned over 25% annually ever since its inception in 1997. Why is Mandel worth following you might ask? Well, he served as a consumer/retail analyst for Tiger Management back in the day for legendary investor Julian Robertson. Robertson's proteges/right-hand men have been nicknamed the "Tiger Cubs" and many have started their own funds. So, not only has Mandel learned from one of the best, but he has put up some very solid returns himself. Although Mandel was taught in the ways of finding undervalued companies, his funds typically employ a strategy of selecting stocks of solid companies with good management that are trading below their intrinsic value. Just this past year 1 of his funds was up 34% before fees while another was up 32% before fees. His track record speaks for itself. And, not to mention, he learned from one of the greats in Julian Robertson.

So, let's get right down to it... what was Lone Pine up to this past quarter? The following is Lone Pine Capital's current holdings as of March 31st 2008 as released in their most recent 13F filing with the SEC. I've compared the positions in this most recent 13F to last quarter's 13F and here's what the breakdown looks like:

New Positions: (in no particular order)
CB Richard Ellis (CBG) 11,841,207 shares
Illumina (ILMN) 2,401,239 shares
Monsanto (MON) 2,441,900 shares
NY Times (NYT) Puts (100,000 of them)
Sears (SHLD) Puts (986,800 of them)
Teradata (TDC) 9,254,453 shares
Visa (V) 3,900,000 shares from the i.p.o.
XTO Energy (XTO) 8,069,313 shares

Added to:
Apple (AAPL) increased position by 381% (2,314,005 more shares)
CME (CME) increased position by 32% (144,506 more shares)
Deltek (PROJ) increased position by 18% (343,279 more shares)
Google (GOOG) increased position by 80% (721,474 more shares)
Infosys (INFY) increased position by 79% (3,070,924 more shares)
Nutrisystem (NTRI) Puts, increased put position by 278%
Sandridge Energy (SD) increased position by 53% (3,502,690 more shares)

Reduced Positions:
America Movil (AMX) reduced by 21% (sold 2,783,867 shares)
Brookfield Asset Mgmt (BAM) reduced by 26.5% (sold 3,037,700 shares)
Dicks Sporting Goods (DKS) reduced by 11% (sold 602,404 shares)
EMC (EMC) reduced by 25% (sold 3,622,624 shares)
Fastenal (FAST) reduced by 11% (sold 884,436 shares)
Mastercard (MA) reduced by 7% (sold 70,045 shares)
Priceline (PCLN) reduced by 34.4% (sold 1,075,046 shares)
Qualcomm (QCOM) reduced by 19% (sold 3,126,665 shares)
SAIC (SAI) reduced by 3% (sold 238,680 shares)
Southwest Energy (SWN) reduced by 27.7% (sold 2,829,432 shares)

Removed Positions:
Positions Lone Pine Capital sold out of completely
American Eagle Outfitters (AEO)
Burlington Northern (BNI)
Career Education (CECO)
Carmax (KMX)
Coach (COH)
Eastman Kodak (EK)
Fidelity National Info (FIS)
Intercontinental Exchange (ICE)
Overstock (OSTK) Puts
Pharmerica (PMC)
Schlumberger (SLB)
Sina Corp (SINA)
Vulcan Materials (VMC)
WNS Holdings (WNS)

Positions with no change:
Bunge (BG) Puts
Eagle Materials (EXP)
SRA International (SRX)

Top 10 holdings by % of portfolio:
1. GOOG (Top Holding)
2. AMX
3. QCOM
4. XTO
5. AAPL
6. SD
7. FAST
8. CME
9. MON
10. CBG

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Breakdown: Right off the bat I noticed two themes with Lone Pine's additions to the portfolio this quarter: technology and energy. Mandel started a new position in XTO this past quarter and brought it all the way up to the #4 holding in the fund. This was obviously a smart maneuver as XTO has exposure to both oil and natural gas, which are both roaring. Next, we see that he massively added to his AAPL position, by 381%, bringing it to the fund's 5th largest holding. He also added a bit more to his already top holding of GOOG. And, he obviously was buying on the big dip we just saw in that name. MON was a new addition to the portfolio and he added pretty big, making it the 9th largest holding in the fund and it appears this is the way he wishes to play the secular growth in agriculture (I prefer fertilizer myself, but that's a whole nother conversation). Also, interestingly, he added CBG, a commercial real estate services firm and brought it up to the 10th largest holding in the fund. This move puzzled me a little bit, as numerous people think commercial real estate will continue to suffer. Maybe this was a trade or maybe he just saw true value here... only time will tell. He added to his CME position some more (by 32%) and brought it up to the 8th largest holding in the fund. I like the exchanges here, but CME in particular could face major headwinds if the government decides to get involved as rumored. (I like NYX as an exchange play). Notably added to also was his position in INFY. This is significant only because I saw numerous hedge funds add to this name last quarter and so I had to mention it (more on that in the posts to come as well). Mandel has aggressively added to his put position in NTRI, so you might want to look at that as a good short candidate. Also, Lone Pine added to SD, which I pointed out in the last post, mentioning that Boone Pickens was one of many others who had added this name seemingly out of nowhere. Its a natural gas play so it makes sense, and it looks like its definitely time to do some research on this company to see what exactly all these funds are seeing.

Mandel also reduced his AMX position a tad, but it looks just to be profit taking, as it is still easily the #2 fund holding and a favorite of many hedge funds. The same can be said for QCOM... some profit taking to free up cash to put into other tech names. Still like QCOM though as it is in practically all the hedge funds' portfolios I follow. He sold off a little bit of MA as well, undoubtedly profit taking as that name has had a monstrous run, but should easily continue to perform as the world switches from cash to charging with plastic. Mandel's drastic reduction of his SWN position makes me think that he was beginning to swap SD in place of SWN, or he just wanted added diversification in the natural gas space.

Notably, Lone Pine sold completely out of AEO and they seem to have given up on the specialty retailer, waving the white flag in the dreaded consumer discretionary sector. I actually liked AEO due to their compelling valuations here (stock has been absolutely trashed). But, I will admit it was Lone Pine (& a few other funds) presence in the name that gave me added confidence. This was obviously a long term hold name, but it seems as if they have dumped it during these tough times to put the money in sectors that are working (tech, energy). Mandel also sold out of his large position in COH, further assuring us that he is done with specialty retail for now. Lastly, he completely scaled out of his KMX. I believe he kind of followed Warren Buffett into this name to begin with and then he realized that a) no one is really spending big money on cars in this economy and b) the people shopping at Carmax are not necessarily of the best credit quality. So, he was in and out of that name pretty fast.

My personal favorites out of Lone Pine's portfolio: AMX, AAPL, QCOM, XTO, SD, ILMN, INFY, MA

Most interesting move(s): 1. Getting into commercial real estate with CBG. 2. Adding to SD along with a ton of other hedge funds (they obviously all talked to each other about this one). 3. Selling completely out of all their (specialty) retail names (AEO, COH, KMX)

Note: Of their positions, I'm long AMX, QCOM, AAPL, SD, ILMN, V, INFY, MA

Tune in tomorrow when I go over another protege of Tiger Management legend Julian Robertson: John Griffin's Blue Ridge Capital.

BP Capital's 13F (Boone Pickens)

Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's HERE.

So, first up this week we've got BP Capital. With all the commotion surrounding energy these days, I thought it was only fitting that we begin with an energy focused hedge fund ran by none other than Boone Pickens. If you are unfamiliar with Pickens, he is an energy maverick and his fund returned 300% in 2005. He is a big advocate of Peak Oil Theory and runs an energy-centric hedge fund based in Dallas, Texas. Although he typically holds numerous positions in oil, he is also big on alternative energy (except ethanol) and has numerous holdings there as well. He most recently advocated a large natural gas position and has additionally made a big bet on wind energy. His most recent thoughts can be seen here from my recent post.

Now, let's get down to business. The following is BP Capital's current holdings as of March 31st 2008 as released in their most recent 13F filing with the SEC. I've compared the positions in this most recent 13F to last quarter's 13F and here's what the breakdown looks like:

New Positions:(in no particular order)
Halliburton (HAL) 1,476,346 shares
McMoran Exploration (MMR) 1,017,151 shares
Sandridge Energy (SD) 1,025,621 shares
Transocean (RIG) 1,085, 365 shares
XTO Energy (XTO) 716,762 shares

Added to:
ABB Ltd (ABB) increased position by 2.7% (70,878 more shares)
Clean Energy Fuels (CLNE) increased position by 1% (3946 more shares. Note: This is also Pickens' company)
Dresser Rand (DRC) increased position by 2.7% (24,731 more shares)
Fluor (FLR) increased position by 2.7% (15,980 more shares)
Foster Wheeler (FWLT) increased position by 139% (422,788 more shares)
Greenbrier (GBX) increased position by 2.7% (15,183 more shares)
Interoil (IOC) increased position by 0.8% (7,652 more shares)
Jacobs Engineering (JEC) increased position by 2.7% (23,766 more shares)
KBR (KBR) increased position by 2.7% (16,353 more shares)
Occidental Petroleum (OXY) increased position by 2.7% (52,277 more shares)
Schlumberger (SLB) increased position by 16.6% (164,306 more shares)
Shaw Group (SGR) increased position by 2.7% (17,914 more shares)
Talisman (TLM) increased position by 2.7% (79,210 more shares)
Titanium Metals Corp (TIE) increased position by 2.7% (28,847 more shares)
Weatherford Intl (WFT) increased position by 41% (160,845 more shares)

Reduced Positions:
Chevron (CVX) decreased position by 55% (sold 529,063 shares)
Denbury Resources (DNR) decreased position by 7.2% (sold 238,679 shares)
Suncor (SU) decreased position by 31% (sold 559,812 shares)

Removed Positions:
Positions BP Capital sold out of completely
Anadarko Petroleum (APC)
Exxon Mobil (XOM)
Valero (VLO)

Positions with no change:
None

Top 10 holdings by % of portfolio:
1. RIG (top holding)
2. OXY
3. SU
4. SLB
5. DNR
6. FLR
7. ABB
8. JEC
9. HAL
10. TLM
---------------------------------------------------------

Breakdown: So, it appears that Boone Pickens is moving away from the integrated oil plays and into companies that do not have exposure to refining. He's cut his CVX position in half and gotten completely out of XOM and VLO. And, you can't blame him with Oil at current prices... refining margins just flat out suck here. I really like his move (back) into RIG. In his 13F prior to this one, he had sold out of RIG completely and I was very puzzled by that maneuver. But, good to see he's back in the name considering they are seeing very high high day rates. And, in fact, RIG is now BP's largest holding in the portfolio. And, he just picked it all up this past quarter. I wouldn't be too worried about him selling some SU seeing as he's probably just doing some profit taking as well as freeing up cash to put in more natural gas oriented plays. He's stated numerous times that he really likes the Canadian oil sands for their market positioning. He really beefed up his position in FWLT and it looks like he really likes infrastructure plays with his picks of FWLT, JEC, and FLR, with FLR being his top infrastructure holding. I definitely agree on FLR and FWLT, but I'm not entirely sold on JEC yet (time for more research). He also started a position in SD which is interesting because numerous other hedge funds also started a position in SD this past quarter (more on that in the posts to come). But, given his bullish stance on natural gas, this play makes perfect sense. So, there you have it, a glimpse inside Boone Pickens' mind and a peek inside his portfolio.

My personal favorites out of his portfolio: RIG, OXY, SU, FLR, FWLT, XTO
Most interesting move: His addition of SD, considering numerous other hedge funds added it too

Note: Of his positions, I'm long RIG, OXY, SU, FLR, FWLT, SD

Tune in tomorrow when I detail the changes within Lone Pine Capital's portfolio, ran by Steven Mandel (a protege of legendary investor Julian Robertson).

Hedge Fund Activity / 13F

(Just FYI: This post marks the first of a series I will be doing this week that details what the "smart money" has been up to lately.)

Four times a year, hedge funds & asset managers with > $100 million AUM (assets under management) are required to report to the SEC their holdings from the previous quarter. I check these 13F filings quarterly just to get a sense as to where these funds are putting their money sector wise. If you just sit down and do some simple number crunching between last quarter's 13F and this quarter's 13F, you can see exactly where these funds have been moving their money.

Now, these 13F's should be treated as a lagging indicator simply because the 13F's that were just released May 15th 2008 show the funds' holdings as of March 31st 2008. So, in the past month and a half, they could have completely changed their portfolio. But, at the same time, its easy to see which sectors they are flocking to.

I like to specifically follow value based hedge funds in the hope that they won't experience ridiculously high turnover and thus allowing me to track their sector rotations. Specifically, I follow the Tiger Cubs (otherwise known as the proteges of former Tiger Management legend Julian Robertson). Many of these former proteges/right hand men have started their own funds and here are the ones I've been following:

- Blue Ridge Capital (John Griffin)
- Lone Pine Capital (Steve Mandel)
- Maverick Capital (Lee Ainslie)
- Viking Global (Andreas Halvorsen)

Additionally, I also like to follow the Commodities Corporation "offspring" which typically employ a global macro strategy.

- Tudor Investment Corp (Paul Tudor Jones)
- Moore Capital (Louis Bacon)
- Caxton Associates (Bruce Kovner)

So, I follow a core of value funds in depth and then I also follow a core of global macro funds in depth. Over the next week, I will be going into detail as to what those specific funds were up to this past quarter. Additionally, I like to follow other "whales" and funds that are not necessarily value based, but are still top performers on Wall Street. I won't be going into detail on some of these names, but I will provide some very useful links that give a broad overview of what some of these whales have been buying/selling. Because, after all, you've got to at least keep tabs on what these guys are doing:

- Warren Buffett (obviously)
- Carl Icahn (rabblerousing at its best)
- RBS Partners (Eddie Lampert)

Then, of course, there are some just straight up beastly funds which you have to keep an eye on due to their awesome returns over the years:

- Atticus Capital (Timothy Barakett)
- BP Capital (Boone Pickens)
- Greenlight Capital (David Einhorn)
- Paulson & Co (John Paulson)
- D.E. Shaw & Co (David E. Shaw)
- Jana Partners (Barry Rosenstein)

And, lastly, a few deep value & activist funds.

- Third Point (Daniel Loeb)
- Pershing Square (Bill Ackman)
- Okumus Capital (Ahmet Okumus)
- T2 Partners (Whitney Tilson)
- Tontine Partners (Jeffrey Gendell)

So, over the coming week I'll touch on some important position moves some of these funds/whales have made (new positions, removed positions, etc). And, specifically, I'll be looking in depth at some of my favorite funds on a quarter by quarter comparison. Here are the links to my in-depth analyses of said funds.

- Blue Ridge Capital
- Lone Pine Capital
- Maverick Capital
- BP Capital
- Atticus Capital

Boone Pickens on energy

Just wanted to post this great video from Paul Kedrosky's site that has T. Boone Pickens talking about Oil, Natural Gas, Wind, Coal, Nuclear, and Ethanol. Its a long video (over an hour) but just put it on in the background while you're surfing. He brings up some interesting points. Basically, he's big on natural gas and wind. He would be big on nuclear but he says it takes too long and he's getting old haha. Also, he thinks you have to be in coal as well simply because there's such a large reliance on it. I detailed plays on all these types of energy below in my previous post.

The vid won't embed here for some reason, so here's the link to the video: Boone Pickens video

DNR: possible breakout next week

Just wanted to post this up before I forgot. DNR is forming a nice ascending triangle and has triple/quadruple topped out at around $33. It's right around there now on some solid volume. And, given its association with the natgas space, I expect it to breakout past the $33 resistance and for that level to then become support. Draw a horizontal line across 33 to see what I'm talking about. Making higher lows, MACD is crossing over, RSI is about to make some new highs, stochastics are heading higher. Everything looks pretty solid here. Not to mention, check out those phenomenal hammers everytime this thing touches the 200day ma... outstanding. (ps- anyone know how to save an annotated chart from stockcharts.com? can't figure it out for the life of me)

Adding

going long CTRP on a breakout-pullback-breakout scenario. pulled right back to its former resistance (now support) level of $62.50. Stop out on anything below that

adding to V on this dip

going long CCJ for both a breakout play and because I like this as an investment (uranium, nuclear, etc). More on this one later

also, nice risk/reward setup on WFR double bottom. $62.00 is the absolute bottom so stop out on anything below that and you can get long now. If it breaks to the downside, get short.

also like PCLN here

Some Trades

Just an update from some account moves I made today. Loaded up on COF puts today. The stock itself is a good short for fundamental reasons (analysis on that coming later this week) but also for technicals. There is a ton of recent resistance at $54-55, and then right above that you've got the 200 day moving average. And then, even further at $57.5 there is a double top in terms of most recent highs. So, basically you can pick up some puts (June 40s is what I got into) and then stop out if the stock trades above any one of those stops... just use what degree of security you want in terms of loose stops or conservative ones.


Also, been long MA for a while now. This is almost a pairs trade with COF but I never intended it to be haha. Anyways, took profits on MA today and will look to get back in here on the pullback, as I'm expecting the breakout-pullback scenario with their big earnings gap up. The transition from cash to plastic is a very real story, especially in other countries who aren't as reliant on plastic (yet) as the american consumer is.



Last idea I've got (and I'll analyze this one this week as well) is to short GLD if it closes below $86. That's the support line if you check out the chart and its my line in the sand. There are some fundamentals playing into this trade as well. Stop out if it trades above $86.50-87 (this stop kicking in of course *after* the stock has closed below 86 and initiated our short).

Procter & Gamble (PG): Solid as always

PROCTER & GAMBLE CO
PG: Solid as always
Posted 0 days ago on 4/24/08
PG: Buy, Target Price: $72, Time frame: 6 months

In the midst of a recession, when the consumer is tapping out due to high energy costs and the plummeting values of their homes, stick to the basics. And, that's exactly what Procter & Gamble does. They are a boring, run of the mill blue chip stock. PG delivers solid, consistent returns just like JNJ. Procter & Gamble are involved with producing name brand consumer goods. They have health and beauty products, household care items, and acquired Gillette a few years back, incorporating their products to their lineup. Some of the names you will be familiar with include: Duracell batteries and Braun grooming products. As you can see, PG is simply a consumer staple play. Just like JNJ, Procter & Gamble doesn't provide you with a cool growth story to brag to your buddies about. It does, however, provide you with very consistent returns that can both preserve and grow your capital, as well as reduce your portfolio's risk.

If we are in a recession, these people still need batteries and shaving cream. If we are in a bull market, people will still need cleaning supplies and diapers. The economic environment doesn't matter because PG sells consumer staple goods. PG thrives in a bull or bear market, and that's the beauty of it. As we all have seen over the past few months, slowed growth and recession can hit your portfolio hard, so you need to be defensive. PG diversifies you into a consumer staples sector as well as reduces your risk due to its ability to function in any type of market. As I said in the beginning of this analysis, this pick is a boring blue chip with consistent returns. My main rationale for selecting PG along with JNJ in the consumer staples sector is that they have consistently strong numbers underlying their profitability. The fundamentals alone reveal why PG's stock returns are so consistent. PG has a trailing PE of 20 and a forward PE of 17, so it is technically cheaper on valuation than a competitor like JNJ. With a price to sales ratio of only 2.6, PG can be deemed undervalued by this metric (anything under 5 is considered undervalued). With a price to book ratio of only 3, PG is also slightly attractive in this facet. In this kind of environment, you have to pay a slight premium for protection. JNJ and PG offer that. PG is a solid company though with strong operating margins of 20.29% and a return on equity of 16.66%. These numbers illustrate that PG can perform well in any type of economic environment. Even in a period of slowed growth, PG is seeing 9.4% quarterly revenue growth (this number has accelerated too) and 14.3% quarterly earnings growth. Once again, slow and steady wins the race. And, that's all we need until the market can pick a direction and stop trading sideways in ranges.

Also, looking at institutional ownership of PG once again reveals that Mr. Warren Buffett loves the consumer staples sector, especially JNJ and PG as they both offer great valuation and consistent returns. Buffett's Berkshire Hathaway has an even larger stake in PG than in JNJ. They have pumped a $6.4 Billion investment into PG and it makes up 10.6% of their portfolio. Other notable institutions with very large stakes are investment bank JPMorgan, and investment firms such as Janus and Vanguard. Also, it must be mentioned that 4% of PG's shares are owned by insiders; a very strong number. Investors obviously don't need to recognize large institutional ownership as a reason to own PG, but it certainly helps convey the overall market confidence in PG. Next, let's turn to analyst coverage of PG. 11 analysts rate PG as a strong buy, 1 as a moderate buy, a 4 as a hold. As you can see, an overwhelming majority of analysts love PG. In terms of star rankings, UBS ranks PG 5 stars, while Merrill Lynch, Bear Stearns, and Oppenheimer all rate PG 4 stars. Once again, the investment banks are big fans of consumer staple plays (especially PG).

This is a boring stock to talk about because they make everyday items and don't provide astronomical growth-stock-like returns. However, PG does provide consistent gains, which I am a big fan of in an uncertain market like we are currently in. If negative economic data continues to be revealed, PG will be there to reduce your portfolio's risk and provide solid consistent gains over the long term. People need PG's products no matter what kind of market or economic environment we are in, that's the great thing about it. Its boring to talk about, its a blue chip behemoth, and you simply can't bet against them. PG is a long term value play because consumer staples will never go away.

PG: Buy, Target Price: $72, Time frame: 6 months

Merck (MRK): Selloff = violent over-reaction

MERCK & CO INC
MRK: Sold off due to over-reaction
Posted 0 days ago on 4/24/08
Buy: MRK, Target Price: $75, Time Frame: 1 year

Yet again, Merck (MRK) has seen its shares sold off irrationally and hastily. In recent months, MRK's value has plummeted due to investor/trader overreaction. Sure, the negative news that came out each time warranted a slashing of MRK shares. But, what we saw instead in this uncertain market environment was a complete and utter beatdown. 4 months ago, MRK was trading at $60. Now, it trades at around $38. Investors sold off this name on the panic (just like many other names) but then the shorts leaned in on this name and really drove it down. Look at it this way, nothing has materially changed at MRK's business. Their earnings are still strong and the worries surrounding their drug Vytorin are overdone. If you've followed the street for any amount of time you know that when a company misses estimates or comes out with negative news, the shares drop. Pile that in with a bear market and you've got a recipe for disaster. So, all this overreaction has simply presented an opportunity for longer term MRK investors. Remember the Vioxx scare? MRK certainly rebounded from that back up to $60. Vytorin worries now? No problem. Just pick up some shares of MRK on the drop and hold it for the year and you should see a solid recovery story just like before. Normally, when a stock announces it's going to be losing $4.85 billion, that would be seen as a very bad thing. But, in Merck's case, it is not. Merck (MRK) has settled its Vioxx lawsuits to the tune of $4.85 billion. This is actually a very good thing for the company because if they had fought each case individually, chances are, they would have had to pay a lot more. And, more importantly, it gets rid of the Vioxx noose that has been around its neck for so long. And now, with Vytorin questions looming, investors "sell now, ask questions later."

MRK has lost a third of its value this year mainly over Vytorin concerns. Yet, they have even said Vytorin is not meaningfully going to impact earnings in a negative manner. In fact, MRK just reported earnings and beat estimates by 3 cents. Even in this recession. Sure, they lowered the estimates for Vytorin and Zetia which obviously should not send the stock higher. But, it should not take off a third of the stocks value when you have not seen it affecting earnings. And, management has even said it should not change anything too much in their quarters. Roughly, this drug can represent 8% of MRK's sales and they just lowered the guidance. They didn't say this drug won't sell, they didn't say they're going to take a loss either. They're simply going to not make as much money as they once thought. MRK is trading at about 12 times earnings for this year. You be the judge.

Fundamentals: Merck has a trailing PE of 25 and a forward PE of 10.5, reflecting even more growth going forwards. Its PEG ratio of 1.27 is slightly high, but still manageable when you see that its price to sales ratio is just 3.55, indicating ndervaluation. So, Merck is actually fairly valued here. In addition to that, they have operating margins of 25.8% and a return on equity of 18%, very solid numbers in both categories. This is the main reason to buy MRK for the long term. Sure, eventually growth will slow. But, until then, you have to be in this name. Not to mention, MRK also has only $5.7 billion in debt, as compared to its $8.2 billion in cash. So, their debt to equity ratio is quite low and they can service this debt without any problems. Lastly, they are a dividend darling in the sense that they have a strong dividend of 4% and this dividend has been raised over numerous years. Since it's a long term play, treat it as your high yield savings account as this stock by itself yields more than typical online high yield savings accounts and most bonds or CD's. In addition, you get whatever share appreciation there should be over the year. And, if you want to make the deal even sweeter, write some covered calls on this name 10% or so out of the money each month. This will generate some premium that you can pocket each month in addition to the dividend.

Institutional Ownership: Some of the great hedge funds out there own this name. MRK can be found in numerous hedge funds' portfolios including: Maverick Capital, Caxton Associates, Ken Fisher, and Bridgewater Associates. Maverick is a $10 billion fund with consistent guidance from Lee Ainslie. Caxton Associates is a $20 billion fund with a global macro trading platform. Ken Fisher runs a $30 billion asset management firm and is a well respected big time investor. Bridgewater is a powerhouse in the hedge fund industry, managing over $160 billion. So, as you can see, there are some big guns in MRK and the most interesting bit is that all these funds implore different strategies, yet they are all in MRK. That says a lot about MRK as a company. No matter what strategy they are using, they all want to be in MRK for different reasons. MRK is clearly a solid play. And, you can bet that some of these firms have been adding on the severe "fire sale" of MRK shares.

MRK has been beaten down solely because of the market environment we are in. Should this have been a typical bull market, MRK shares would only be off 10% at most. Yet, since we are in a bear market with uncertain conditions, MRK has seen investors panic and short sellers lean in on this name. This 30% haircut MRK has seen is simply a casualty of the market environment. Be smart and think for the long term to add on the dips for this name if you're a long term player. If you're not a long term player, then move along this name's not for you. 1) They finally got the massive Vioxx lawsuit off their hands. Yes, they had to pay a lot to do so, but it saved them a ton of money by settling rather than fighting each individual case. 2) Their fundamentals are very very strong and that's the main reason they are so dominant in their industry. Their quarterly earnings growth is huge, and this is the main driver for any company. That is one of the main numbers you look at in terms of a company's ability to perform. 3) Numerous big investors and hedge funds have large stakes in MRK. Whether it be for valuation reasons, macro reasons, or growth reasons, all the big names mentioned earlier have large positions in MRK. They fully expect MRK to continue to grow and dominate within the pharmaceutical industry. 4) Vytorin worries are overstated. Yes, they will not see as many sales as anticipated. But, right now the street has effectively priced in as if they will practically no Vytorin. Not to mention, this drug only makes up around 8% of their total sales for the year. Violent reactions create excellent opportunities. Buy MRK for the long term (at least a year) to capitalize on a severe market overreaction.

Buy: MRK, Target Price: $75, Time Frame: 1 year

Johnson & Johnson (JNJ): Slow and steady

JOHNSON & JOHNSON
JNJ: Slow and steady
Posted 0 days ago on 4/24/08
JNJ: Buy, Target price: $72, Time Frame: 6 months

Johnson and Johnson operates in one of the few sectors of the economy that can do ok and thrive in a slowed growth or recessionary environment. As the old saying goes, slow and steady wins the race. This cliche summarizes Johnson & Johnson (JNJ) up quite nicely. This stock is nothing extravagant, not super volatile like some Chinese or tech stocks, and quite frankly, boring. This is your atypical run of the mill blue chip beast. That's right, JNJ won't add massive returns to your portfolio like some growth stocks, but it will deliver consistent returns, and that's what is so great about it. Johnson & Johnson (JNJ) researches and makes consumer staples, that's all there is to it. They have over 250 companies involved in the industries of pharmaceutical, medical devices, and consumer products. They make the goods you use on an everyday basis to stay healthy. Items in their arsenal include Tylenol, Band Aid, and Neutrogena. JNJ makes boring stuff you use everyday, and that's exactly why you should own the stock. JNJ is not a growth story, it is not a value story. JNJ is simply a survival story at this point. Look for this sector and this company in particular to help you weather the economic storm in your portfolio. Their products are all over and constantly used; they are necessities in any household. And for that exact reason you should own JNJ. And, if you haven't noticed, the stock has been performing quite nicely while numerous other stocks have struggled the past few months.

When times get tough and people start to see their income shrinking, they stick to the basics to survive, and JNJ provides just that. Johnson & Johnson performs well in any market, but performs even better in a recession. JNJ will still deliver the same consistent returns it always does. That is the main selling point of JNJ: consistency. You know what you're getting and you don't need to worry about the market environment. In an uncertain environment like we are in now, add consumer staples to the portfolio to a) diversify your portfolio and b) reduce your risk. If other sectors in your portfolio get hit hard, JNJ will stay strong and consistent. (Hence why you see it at a 52-week high while the rest of the market begins to tank). Now, the sector of consumer staples is pretty large and filled with some big names, so why JNJ? Well, the fundamentals explain the reason as to why I am selecting it as one of my main consumer staple plays to help reduce risk in your portfolio. This means that not only does JNJ protect you from short term uncertainty, it gives you a lot of upside in the stock for the long term. Take a look. JNJ has become slightly pricey at these levels, but that's completely acceptable as it's the premium you pay to protect yourself in a rough market. With a trailing PE of 16 and a forward PE of 14, JNJ is not unattractive though considering the environment we are in. And, not to mention, it has gotten cheaper on valuation when compared to last quarter because it is now trading at a lower PE. With operating margins of 25% and a return on equity of 24.6%, JNJ has a strong core business. These numbers allow them to have a 7.7% growth in quarterly revenue, despite the environment we are in. Again, JNJ is about consistency. Lastly, by a price to sales metric, JNJ is undervalued with a PS ratio of only 3.1 (anything under 5 is undervalued). Also, JNJ's price to book ratio is 4.47 which isn't bad at all either. So, you are barely paying a premium for the protection JNJ offers. Lastly, JNJ dominates in terms of quarterly earnings growth, seeing 39.8% growth year over year.

Institutional Ownership: Warren Buffett's Berkshire Hathaway has invested over $3 Billion in JNJ and owns over 53 million shares of JNJ. It makes up 5.4% of their portfolio. Buffett's track record speaks for itself, and I can definitely see why JNJ is one of his favorites. Looking at other major institutional owners reveals that all the other big dogs are there, such as Vangauard, Fidelity, and Barclays. When looking at things from a hedge fund ownership perspective, you will see that Renaissance Technologies holds 3.1% of its portfolio in JNJ (a $2 Billion investment). This hedge fund is often regarded as one of the top10 hedge funds out there. Now, there are many other big owners of JNJ, but these are the names that speak volumes. All these firms realize that JNJ has value and that it services a sector that will never go away. A look at analyst coverage reveals 7 strong buys, 2 moderate buys, and 5 holds. Not one negative recommendation. A look at the star ratings reveals that Bear Sterns and Raymond James rate JNJ 5 stars, while Bank of America, Goldman Sachs, and 4 other major investment banks all rate JNJ 4 stars. They all expect JNJ to easily outperform expectations with low risk.

Stay diversified and reduce the risk in your portfolio with JNJ.

JNJ: Buy, Target price: $72, Time Frame: 6 months

Diageo (DEO): International Flavors

DIAGEO PLC ADS
DEO: International Flavors
Posted 0 days ago on 4/24/08
Buy: DEO, Target Price: $98, Time Frame: 1 year

A while back, I wrote an analysis on DEO with an $87 price target to be achieved in 6 months. And, I was pleasantly surprised to see that it reached that target in less than 3 months time. As a matter of fact, it surged an additional 6 points to 93 before settling back down. So, looking at the rationale behind buying DEO the first time, I noticed that the fundamental story behind DEO still holds true and there's no reason for this name not to perform well throughout next year. So, let's re-examine DEO. It's been a few months and we've let it cool off and digest its big move. After consolidating and dropping off like the rest of the market, DEO has formed a nice base and has begun trending back up higher. It's a great time to load up on this international company.

If you're unfamiliar with what Diageo does (as I was when I first heard about them a few years ago), Diageo (DEO) makes alcohol, that's all there is to it. Their brands include Captain Morgan, Smirnoff Vodka, Johnnie Walker Whiskeys, Baileys, Guinness, Crown Royal, and most recently, Absolut Vodka. People have vices, and DEO is their supplier. People all around the world obviously love alcohol and so its one of those recessionary proof names. So, regardless, this is a good name to have in the portfolio. DEO truly has a global presence and caters to nearly every type of alcohol drinker with their diverse line of products. This is a recessionary name because its alcohol (think Altria/MO/PhilipMorrisInternational/PM). At the same time it's a great multinational company due to its large international exposure. And, its just simply a well-run company.

To prove that, all you have to do is look and see that DEO has actually been stealing market share from traditional beer producers such as Anheuser Busch. The trend so far is a decrease in beer consumption and an increase in wine and spirit consumption. Specifically, in regards to the domestic beer market, consumers have been shifting from the typical names such as Budweiser and Coors and have been shifting to the craft and specialty beers, which obviously benefits DEO. Now, at the same time, don't expect domestic beers to just drop off the planet all of a sudden, but there has been a noticeable shift and it seems to favor Diageo and hurt the likes of Anheuser Busch. And, unlike Anheuser, Diageo has a vary diverse product offering, ranging from wines to liquors to spirits, etc.

Fundamentals: Currently, DEO has a market cap of $53 billion and a trailing PE of 17 and a forward PE of 15. DEO's price to sales ratio is very attractive at 3.49, well below the undervalued region of 5. DEO's PEG ratio could be better though, coming in at a slightly high 1.62. But, this is a 5 year predicted growth rate and we will only be playing this name for the next year, so we could technically calculate a whole different PEG for our purposes. Turning to operating margins we see that DEO enjoys healthy margins of 28.75% (slightly increasing quarterly too). Also, DEO's return on equity comes in at a strong 36% (accelerating rate as well). These numbers are very strong and are helping fuel DEO's bottom line. The only major negative with DEO is their debt. They currently have 13 billion worth of debt, and only 1.75 billion in cash. So, keep this in mind when considering this name. Keeping track of how DEO manages this debt is essential to their continued success. If you are a true fundamentalist, then this ratio of debt/equity might completely steer you clear of this name, which is understandable. It is indeed a lot of debt. But, at this stage, given my time frame, I'm looking more at their international exposure and diversified product base.

Next, let's turn to another major reason to buy DEO. Originally, when I first analyzed DEO, the technical signals were very bullish and were a main reason behind the buy then. This time around, they tell a slightly different story. Currently, DEO is in a slight uptrending, but still below its 200 day moving average. One positive though, is that it is currently trading above its 50 day moving average and is using this line as support. So, as long as this uptrend stays in tact, DEO should be crossing above its 200 day moving average, giving it a completely bullish chart. Given the market conditions currently (overbought, due for a correction) it is a very real possibility that DEO will trade sideways or even below its 200 day moving average. I mainly just wanted to write about this name now before I forgot about it. So, right this second is not necessarily the best time to buy DEO. Sure, the uptrending pattern from its recent low in January is a great sign, but ideally I'd like to see it break above its 200 day moving average. DEO seems to trade in a distinct range on the chart, using its moving averages and bollinger bands as support lines. There are obviously a lot of technical traders/investors who play this name since it seems to always bounce right where it should based on technicals; call it a self-fulfilling prophecy.

Looking at the institutional ownership aspect of DEO, we see that there are some big names with big stakes in this company. Lazard Asset Management, Renaissance Technologies, Fidelity, Barclays, Wachovia, Bank of America, Keybank, Fidelity, and Legg Mason all have major positions in this name. Each of these companies has invested at least $172 million into DEO, with Renaissance Technologies investing as much as $328 million into DEO. And, no, Renaissance is not actually a technology company, but rather one of the most consistent and successful hedge funds in the game. They are known for dominating the market and achieving excessive returns on a yearly basis. So, when they take a large stake in a company, you want to take notice. Their confidence in DEO should instill confidence in the everyday investor regarding this name.

As I said earlier, it might be a little early to get into this name so watch it carefully; I just wanted to write about it before I forgot. Its currently in a great slow and steady uptrend over the last 3 months and is sitting on the 50 day moving average as support. If it breaks above the 200 day moving average at around $84 then you can be a strong buyer. Right now I'd only scale into it until we get confirmation of the trend and that the support line holds. Last time the technicals worked perfectly as it reached my 6 month target in just 2 months. So, let's see if DEO can continue its uptrend as investors pile into a name they know is safe when uncertainty surrounding the US markets and economy increases. Play DEO for its product line and international exposure and maybe we'll get lucky again and have it reach the price target in a fifth of the time again.

Buy: DEO, Target Price: $98, Time Frame: 1 year