Jeffrey Vinik became famous as an investor during his days in the early to mid 1990s when he ran Fidelity’s Magellan mutual fund. He then left Fidelity and founded Vinik Asset Management, which today primarily manages money for family and friends. Vinik files a 13F with the SEC about seven weeks after the end of each quarter, giving the general public the chance to see what the fund has been buying and selling (at least in terms of long equities). Here are some investment themes that we noticed when going through the 13F and comparing it to previous filings.
Which gold miner? Vinik was very active in the gold mining industry. While the fund sold a considerable number of its shares in Barrick Gold Corporation (NYSE:ABX) and sold over 80% of its shares in Goldcorp Inc. (NYSE:GG), it initiated a position of 14.5 million shares in NovaGold Resources Inc. (NYSE:NG). Barrick, which was still Vinik’s largest stock holding reported on the 13F, and Goldcorp are giants in the industry with market capitalizations above $30 billion (Novagold has a much smaller market cap, of $1.2 billion). All three stocks are down in the last year, but Novagold has fallen the furthest as Wall Street analysts expect the company to be unprofitable both this year and next year. It’s possible that, being a distressed business, its stock price has the most to gain from a recovery in gold prices, but we’re not sure we’d want to be so dependent on gold going higher. The other two gold miners differ a bit: Barrick is much cheaper in terms of its P/E multiples at 10 times trailing earnings and 7 times forward earnings estimates (compared to 21 and 12, respectively, for Goldcorp). However, Barrick’s earnings were down 55% in the third quarter of 2012from its levels in Q3 2011, so its low multiples make some amount of sense. We think that gold watchers should be considering the miners as well as more direct ways to invest in gold.
Best Buy. Best Buy Co., Inc. (NYSE:BBY) has been suffering as Amazon and other retailers poach much of its electronics retail business, but the stock price has been bumping around recently as co-founder Richard Schulze moves towards a potential takeover of the company. It’s not clear that he’d actually be able to execute- Schulze would need substantial private equity and debt capital to make the buyout work, and while the current EV/EBITDA multiple is a very low 2.3x we think that lenders might balk. The stock is down 44% in the last year and trades at only four times forward earnings estimates as the market is highly skeptical of the sell-side’s optimism. Read our analysis of Best Buy as a public company. Vinik liked the stock during the third quarter, closing September with 5.2 million shares in its portfolio, but we’d avoid the stock- long and short positions would both carry too much risk.
Selling Home Depot. Vinik cut its stake in The Home Depot, Inc. (NYSE:HD) from 1.7 million shares at the beginning of July to about 300,000 shares by the end of the quarter. Home Depot’s stock has been up as investors look to increased housing and construction to drive demand, but in the third quarter earnings were only up 1% from a year earlier. Adage Capital Management, which is managed by Phil Gross and Robert Atchinson, had been a major holder of the stock during the second quarter. At 22 times trailing earnings, we don’t think that Home Depot is a good buy.
Our impression is that Vinik made a good call by selling Home Depot- the pricing seems a bit high right now. Best Buy is a different story: it’s possible that the potential for a buyout is keeping the price up and if that transaction doesn’t happen shareholders could see a correction. We don’t have a particularly strong opinion on the gold miners, though it looks to us like Vinik is depending quite a bit on higher gold prices by taking such a large position in Novagold.