Richard Chilton started Chilton Investment Company in 1992 following stints at Merrill Lynch and Allen & Company. Chilton focuses on a value-oriented, fundamental research approach to equity selection. Chilton makes investment decisions based on a wider than normal long-term outlook. In reviewing his 13F filings, we found five stocks that Chilton was getting out of completely during the third quarter. It would appear that these stocks do not fit into Chilton’s long-term investment framework (check out Chilton's newest picks).
Google Inc (NASDAQ:GOOG) has an issue with revenue diversification, and was a selloff for Chilton last quarter. The search giant is heavily reliant on search revenues. Google previously launched its very own mobile phone – the Nexus One – but soon after stopped selling it directly. Google does have promising opportunities, including YouTube and the digital wallet, but these remain a small part of the company’s top line.
Another headwind facing Google is the migration to mobile search. Although this is a fundamental shift that Google will not be able to ignore, it is cannibalistic to its PC-focused search business. With a P/E that is well above other tech peers at 22x, compared to Apple (11x) and Microsoft (14x), it could be Chilton sees better value and growth opportunities in Google’s competitors. Billionaire Ken Fisher - founder of Fisher Asset Management and Forbes columnist - is still one of Google's top supporters (check out Fisher's other picks).
Starbucks Corporation (NASDAQ:SBUX) has been performing well of late, with top line growth last quarter and margin expansion to boot. Revenues were up 11% last quarter on a year over year basis, and management boosted their outlook, and expected net store addition plans for next year. Up 15% year to date, Starbucks is trading at the high end of the industry at 30x earnings, though its historical average is closer to 25x. Still, this valuation leads us to be cautious, especially given continued weakness and poor sales in Europe. Billionaire Ken Griffin - founder of Citadel Investment Group – was one of Starbucks’ big investors last quarter (check out Griffin's newest picks).
Beam Inc (NYSE:BEAM) saw its sales up 8% in 2011 and another 8% is expected by the end of 2012. Beam has an impressive product portfolio with a range of brands, from stable names such as Jim Beam and Maker’s Mark to higher growth brands like Knob Creek and Effen Vodka. Beam trades at the high end of the industry on a P/E (27x) and P/S (3.9x) basis, being up 20% year to date. We see the industry as having positive prospects with a rise in consumer spending, but remain cautious that this stock's valuation is high. Billionaire Bill Ackman is Beam's largest fund shareholder with over 20 million shares (check out Ackman's latest picks).