First Eagle’s Top Stock Picks

Born in France, Jean-Marie Eveillard entered the world of finance in 1962 with an analyst job at Societe Generale. Eveillard then relocated to the U.S. in 1968 and worked for SoGen International Fund (which became First Eagle Global in 2000), later becoming the fund’s portfolio manager. In 2009, Eveillard moved into a senior advisor role for First Eagle Funds and is currently in this position.

Founded in 1803 in Germany, First Eagle Investment Management invests with a long-term, global perspective. The firm moved to the U.S. in 1937 and in 1999 acquired the majority share of Societe Generale Asset Management. The funds managed by Societe then became known as the First Eagle Funds. As of 2Q 2012, First Eagle had $66 billion of assets under management.

Cisco Systems, Inc. (NASDAQ:CSCO)

First Eagle made only modest increases in their top five holdings during 2Q 2012, but did increase their largest holding, Cisco Systems Inc. (NASDAQ:CSCO), by 11%. First Eagle has owned the most shares in Cisco of any firm we track since the second quarter of 2011, currently at 46 million (see all investment firms owning Cisco here). The communication equipment company provides products and connects and manages communications across local and wide-area networks. As more companies increase their bandwidth usage, this will prove positive for Cisco, as it is a “total solutions” provider.

Cisco does trade at a significant discount when compared to key peers, such as Juniper Networks, Inc. (NYSE:JNPR) which is a tenth the size of Cisco. Juniper trades at a P/E of 40, while Cisco is at 13. However, Cisco’s forward P/E is 9. We believe that Cisco trades at a discount to most of its smaller, more growth-focused peers because its market share expansion has plateaued, and it is in the early stages of new product development.

The IDC puts Cisco’s Ethernet switching market share, which is 32% of product sales, at 60%. As well, the company is a leader in routers, holding an estimated 51% of the market. Routers are 18% of Cisco’s revenue. Cisco pays a fairly safe dividend that yields 3.0%. The company boasted $49 billion in cash as of the end of 2Q, while only having debt of $16 billion.

Making up almost 3% of First Eagle’s 2Q 13F portfolio is Microsoft Corp. (NASDAQ:MSFT). A “computer” company is just what it they want competitors to think it is; Microsoft has quietly reinvigorated itself, with strides in becoming more engaging with its customers. These improvements include an upcoming interactivity that will be programmed into the its latest Xbox, as well as what it is doing with its own social network. Microsoft is trading at a trailing P/E of 16 and a forward P/E of 10.

Aside from First Eagle, other key firms invested in Microsoft are Ken Fisher of Fisher Asset Management and Boykin Curry with Eagle Capital Management. This trio has been the top three owners of Microsoft out of all the firms we track since at least the first quarter of 2011. Although the company’s stock has traded in the $30 range for the better part of the summer, its anticipated gaming system, an improved operating system, and a new tablet may break Microsoft out of this funk. For the wait, Microsoft pays a 3% dividend yield.

Comcast Corporation (NASDAQ:CMCSA) and the NBC Universal combination of 2011 should help advance Comcast’s 2012 revenues by 8.4% to $62.5 billion. The company will now be able to penetrate across various facets, including bundled video, data and voice. The combo will also allow Comcast margin expansion in 2012. The company has seen a run up in shares, up over 50% year to date, and now trades at a 20 P/E, while DIRECTV (Why Buffett is a DIRECTV subscriber?) trades at 14 and Time Warner Cable at 17. Insider sales have been robust amongst the run up.

SYSCO Corporation (NYSE:SYY), a food distributing company, makes up 2.7% of First Eagle’s 2Q 13F portfolio. SYSCO has had mixed performance and varied share price performance over most of the past decade. Given that most of SYSCO’s sales are to restaurants, 62% of 2011 totals, it’s possible that extended high levels of unemployment may continue to hamper the stock’s returns. The industry tends to be ripe with competition for food distributors, but SYSCO maintains about an 18% market share. Estimates show about 9% of growth in next year’s EPS, and the company pays a dividend yielding 3.5%.

Cintas Corporation (NASDAQ:CTAS), the uniform rental company, has built a large business on providing uniform rentals to businesses. Uniform rentals made up 70% of the company’s 2011 revenues, but Cintas has also been expanding its services. Now more than 50% of the company’s customers purchase services other than uniforms, such as restroom supplies and cleaning, first aid and safety and fire protection. In addition to First Eagle, Chuck Royce and Jim Simons are both owners of Cintas.

For a complete look at how the hedge fund industry is valuing these stocks, continue reading here.

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