Microsoft Corporation (MSFT), Google Inc (GOOG) & Sandy Nairn’s Favorite Plays

The best of the rest

The fund initiated a position of 5.2 million shares in Tyco International Ltd. (NYSE:TYC) during the second quarter of 2013. The fire protection and electronic security company spun out two of its business units recently, and bulls are expecting that this will allow management to focus more on the core business and therefore improve operations. With a forward earnings multiple of 16, investors are counting on at least some improvement on the bottom line whether it comes through this kind of better management or if Tyco International Ltd. (NYSE:TYC) is able grow its earnings (so far this year growth in SGA expenses has more than offset small rises in revenue).

Johnson Controls Inc (NYSE:JCI), a $25 billion market cap company specializing in building circulation systems and auto interior products, was another of Nairn’s largest holdings with the filing disclosing ownership of 4.7 million shares. Revenue and earnings have been down according to recent reports, but the sell-side seems to be expecting Johnson Controls to recover somewhat: consensus forecasts for the fiscal year ending in September 2014 imply a forward P/E of 12. Still, we think that we would want to see better results from the business before thinking of it as a potential value opportunity.

Recent times haven’t been good for cruise ships; for example Carnival Corporation (NYSE:CCL) is down slightly over the last two years while the S&P 500 has risen about 25%. Edinburgh increased the size of its position in Carnival to 4.9 million shares by the beginning of July, apparently believing that the market has overreacted. Analysts are looking for a decline in earnings in the current quarter (which ends in August and is a crucial one for Carnival’s seasonal business) and for only $1.55 in EPS for the current fiscal year, which would make for a P/E of 23- high enough for us to avoid it for now.

Final thoughts

While we don’t know Sandy Nairn and Edinburgh Partners’ return figures in 2013, it’s clear that they’re probably having a half-way decent year (at the very least), as their top two picks have been two of tech’s top dogs: Microsoft Corporation (NASDAQ:MSFT) and Google Inc (NASDAQ:GOOG). Tyco International Ltd. (NYSE:TYC) is more of a special situations play, while Johnson Controls is a value play and Carnival is a contrarian opportunity. We’ll be watching each of these five companies closely for the remainder of the year.

Disclosure: none