Winton Capital was founded by David Harding in 1997 and by the end of 2011 had grown to $28 billion under management. The fund has had an impressive performance over the last several years, with positive returns in 2008 and only slightly negative returns in 2009 before gains in the next two years. Winton’s 13F filing for the end of September discloses many of the long equity positions that it owned at that time, and investors can go through what the fund owned as a source of potential stock ideas. Read on for our quick thoughts on the fund’s largest holdings or see the full portfolio.
Harding and his team’s top pick was Eli Lilly & Co. (NYSE:LLY), with Winton owning 1.1 million shares at the end of September. The large pharmaceutical company trades at 13 times earnings, on both a trailing and a forward basis. It’s also an excellent defensive stock with a beta of 0.4 and a dividend yield above 4% at current prices. While revenue was down last quarter compared to a year earlier, earnings were up. We’re interested in what we see here and think that we might take a closer look at the company. Andreas Halvorsen’s Viking Global also liked the stock during the third quarter, reporting a position of 4.9 million shares (find more stocks that Viking Global owns).
Philip Morris International Inc. (NYSE:PM) was another of the fund’s favorite stocks as it increased its stake 42% to about 540,000 shares. The company sells Philip Morris brands of cigarettes such as Marlboro in international markets. It’s another intriguing income stock at a 4% dividend yield, though its financials are slipping (likely due to poor demand in Europe). Its trailing P/E is 17. Billionaire Ken Fisher’s Fisher Asset Management more than doubled the size of its own position in Philip Morris last quarter (see more of Ken Fisher’s stock picks). We think that other cigarette companies also offer good yields and might make better values.
Another of the fund’s top picks was Consolidated Edison, Inc. (NYSE:ED), which at current prices pays a 4.4% yield. The $16 billion market cap electric utility trades at 14 times trailing earnings, and as might be expected for a utility marries its high dividend yield to a low beta (0.1). As a result it looks like a very good defensive stock or income generator. We might also consider Con Ed against other utilities on a value basis, given the low multiple. Winton reported owning about 800,000 shares at the end of September.
Winton also bought shares of Verizon Communications Inc. (NYSE:VZ), another high yield stock (the dividend yield is about 5% here). The fund owned about 840,000 shares of the telecom. At a market capitalization of just over $120 billion, it carries trailing and forward P/Es of 40 and 15, respectively, as sell-side analysts promise strong earnings growth in 2013. Net income in the third quarter was 16% higher than in the same period in 2011, but the gap in the earnings multiples is still high enough that we think we’d avoid the stock.
Continuing the streak of companies with generous payout policies was Public Service Enterprise Group Inc. (NYSE:PEG). The company is a diversified utility providing electricity and natural gas in the northeastern and mid-Atlantic U.S. As with Con Ed, it’s unsurprising to see a low beta (0.3) and a high dividend yield (4.8%) at a utility. It trades at 11 times trailing earnings, a discount to Con Ed, though Wall Street analysts actually expect a small decrease in earnings in 2013. Again, we’d be interested in comparing it to other utilities to see if it might be a good buy.