Dear Edgar! I Beg to Differ This Time: The Boeing Company (BA) and More

Page 1 of 2

Value investor Edgar Wachenheim, owner of Greenhaven Associates Inc., is one of the value investors I look to for stock ideas. First, he is very choosy in picking up an addition to his portfolio, and secondly, his portfolio is very concentrated. As per the last 13F filings, this Greenhaven had position in only 26 stocks, with a market value of $3.28 billion. Also, its top 10 holdings represented 84% of the firm’s portfolio.

The Boeing Company (NYSE:BA)This fund in the last quarter disclosed its new position on The Boeing Company (NYSE:BA). Wachenheim bought 1.03 million shares, which I think is a solid move given the long-term growth of this company. However, when I had a deeper look at his portfolio, I circled down two stocks which I think can prove to be a very bad move for this fund.

The stocks are Union Pacific Corporation (NYSE:UNP) and Lowe’s Companies, Inc. (NYSE:LOW).

Stock % of Portfolio Rank in portfolio (out of 26)
Lowe’s Companies 12.99 1
Boeing 2.38 12
Union Pacific 0.01 25

Source: whalewisdom.com

Let’s discuss each of them in detail.

Union Pacific Corporation (NYSE:UNP)

Union Pacific’s 4Q12 earnings were a mixed bag of satisfaction and future concerns. Its quarterly results were decent, as revenue and EPS of the company were up. Its EPS was $2.19 which surpassed the consensus estimate of $2.16. But despite this growth in revenue the overall sales volumes were down by ~2.4%. This decline was caused by the decreased volumes of the agriculture and coal segments.

The major part of the weakness in volume of the agriculture segment came from grain which was down due to a weaker than expected harvesting and limited supply of corn. Moreover, the upside in EPS was driven by bottom line items, i.e., interest expense, other income, and tax expenses, and not because of operations. All these factors do not give me strong future guidance for this company.

Going forward, weakness in the Coal Segment will continue by the high coal stockpiles and low natural gas prices in 2013. The company also expects the coal volumes to be down in the mid-teens in 1Q13, with a slight decline in volume for the full year. Another factor for a weaker coal segment will be the recent loss of a contract which accounted for ~10 million tons of coal/year. The loss quantifies to ~$70 million in revenue in 2013.

On the positive side, the automotive, chemical, and intermodal segments of the company are doing better. In 4Q12 the growth in Petroleum products was driven primarily by a ~160% increase in crude shipments. While the pace of growth will ease slightly in 2013, it is expected to remain strong. Union’s diversified portfolio will surely give it a competitive edge over other players in the eastern region, but I don’t think it will be able to offset the sluggish coal and agriculture segments. I would not advise investors to make an entry in this stock for now.

Lowe’s Companies, Inc. (NYSE:LOW)

If we screen the home improvement industry, Lowe’s won’t be my first choice. I would prefer a more consistent stock like The Home Depot, Inc. (NYSE:HD) rather than Lowe’s. Though the company is trying to improve its operations, but I think its results cannot be expected in upcoming quarters. However, the turnaround in the housing market will help the company’s merchandising initiatives.

Lowe is working on an Operations Restructuring Program to improve the overall profitability through reinvesting in space for its high-volume products and a simpler pricing policy. It expects to complete the line reviews for ~90% of its 400 products line, and will complete the resetting of stores by mid-2013. But, this process has annoyed and confused many of its vendors, as many are forced to shift categories and institute a more aggressive pricing policy.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Bloodiest UFC Fights Ever Fought

Most Expensive Rum Brands in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!