Avalon Advisors Llc is an investment manager of wealthy families, foundations, endowments, and trusts. The firm, which manages $1.46 billion worth of assets as of the end of December 2012, is one of the top fee-only advisers whose competitive advantage is to bring its clients’ tax-efficient, risk-adjusted returns. Let’s take a look at the investment manager’s huge buys for potential investment ideas.
In the fourth quarter, Avalon bought significant amounts of shares in Oracle Corporation (NASDAQ:ORCL) and The Procter & Gamble Company (NYSE:PG).. Likewise, it initiated positions in Citigroup Inc. (NYSE:C), Maxim Integrated Products Inc. (NASDAQ:MXIM), and Goldman Sachs Group, Inc. (NYSE:GS). In this article I'll briefly analyze each stock in a simplistic and intuitive approach.
Sources: Whalewisdom.com, Finviz.com, and Nasdaq.com; as of Feb. 8, 2013
The investment manager doubled its holding in Oracle in the fourth quarter, a position that was initiated only the third quarter. As of the end of December last year, the holding was equivalent to 1.12 percent of the firm’s total portfolio. Back then, shares of Oracle were selling for roughly $32.00. As of publication time, it has gone up by about 9 percent to $34.90. Its growth prospects show this is likely to continue as the company continues to develop an edge in the sector. For instance, Oracle has just announced a $2.1 billion acquisition of networking specialist Acme Packet (APKT). This and other acquisitions the company has recently made show the company’s intent to continue beefing up its telecoms business.
Looking at its fundamentals, the company is very attractive indeed. The trends of EPS, margins, sales, and dividend payments are all very good. Its latest quarterly revenue growth of 3.43% for November, 2012 is higher than that of the same period in the previous year at 2.45%. The company has exceeded EPS estimates in the fiscal quarter ending in November 2012, and the dividend growth is remarkable. The annualized dividend almost doubled from 23 cents in 2011 to 42 in 2012. The company paid dividends five times last year as shown in the figure below. With a healthy P/E ratio of 16.46 and PEG at 1.38, you should be sleeping well if you’ve made the same decision that Avalon Advisors had taken.
The Procter & Gamble Company
Avalon went on a buying spree for P&G shares in the fourth quarter; it increased its shares six-folds. This brought the stake to 198,105, or 0.92% of the firm’s total portfolio. The stock price has jumped from under $70 towards the end of the fourth quarter to around $75 as of publication date.
Indeed, the leading consumer packaged goods company is growing robustly. P&G has been surpassing earnings consensus estimates for the past 4 quarterly reports. Revenue is picking up impressively, with the most recent growth at around 2 percent. This stock is highly favored not only for its leadership in the market but because it is a powerhouse in terms of dividend growth and safety; the annualized amount has just inched up 7.5% from $2.056 in 2011 to $2.21 in 2012. With its current growth trends and prospects, the robust growth in the stock price is likely to continue.
Avalon initiated a position in Citigroup worth $12.98 million, which is equivalent to 0.89% of the firm’s portfolio. As of the end of December 2102, the stock price was a much lower level, at about $35. Today, as of publication time, the price has gone past $42. Citigroup is now at the final phase of a spinoff with its hedge fund unit previously managed by the company’s division - Citi Capital Advisors, now renamed as Napier Park Global Capital. The company has exhibited a large jump in net income in the fourth quarter; from 31 cents a year earlier, earnings per diluted share reached 38 cents. However, it has failed to meet earnings expectations by a notable margin of 20 percent. This is attributed to increased litigation costs and lower benefits from releasing loan-loss reserves, reports noted. Despite this, Citigroup remains strong for its wider margins and healthy valuation. The profit margin for the end of 2012 at 5.35% was notably higher than that in the previous year’s 4.25%. It has a healthy P/E ratio of 17.14 and a PEG at 1.47. Its dividend payment also remains stable at 1 cent per share.