Sandy Nairn’s Latest Stock Picks Include Google Inc (GOOG)

Edinburgh Partners has about $13 billion under management, and while the fund is based in Scotland it does make substantial investments in U.S. stocks (it also has an office in New York). The fund, which is managed by Sandy Nairn, tends to be less diversified than many other hedge funds; it only reports significant positions in between 10 and 15 stocks in its 13F filings. These filings reveal some of its long equity holdings and can serve as a source of ideas that investors can consider further before deciding whether or not each is a good fit for their own portfolio. Read on for a quick look at the five largest positions Edinburgh reported on its most recent 13F, for the end of December, and compare them to previous filings.

Sandy Nairn

Cisco Systems, Inc. (NASDAQ:CSCO) was Edinburgh’s top pick with the fund reporting a position of almost 12 million shares at the beginning of 2013. Cisco was also one of billionaire Ken Fisher’s Fisher Asset Management’s favorite stocks according to that fund’s recently released 13F (check out the rest of Fisher’s latest stock picks). The stock trades at 13 times trailing earnings, despite 18% earnings growth in its most recent quarterly report compared to the same period in the previous fiscal year; revenue growth was lower, but still moderate. We think that Cisco could be a value play.

The fund reported owning about 300,000 shares of Google Inc (NASDAQ:GOOG), down from about 340,000 three months earlier (Edinburgh seems to have generally reduced its equities exposure during Q4). Google Inc (NASDAQ:GOOG) had been the second most popular stock among hedge funds in the third quarter of 2012 (see the full top ten list), and the stock trades at 16 times consensus earnings for 2013 as both the sell-side and the market expects high earnings growth. We think that investors should wait for more quarterly data from Google Inc (NASDAQ:GOOG) to get a better picture of how much it is benefitting from the Motorola Mobility acquisition.

The fund had a large position in another big tech stock:

Edinburgh had 4.5 million shares of SanDisk Corporation (NASDAQ:SNDK), an $11 billion market cap data storage company. SanDisk’s revenue was down 10% in the third quarter of 2012 versus a year earlier, which dragged its net income down 67%. The sell-side expects the company to recover- the trailing and forward P/Es are 24 and 13, respectively- but we think that we would avoid the stock. SAC Capital Advisors, managed by billionaire Steve Cohen, added shares during the third quarter and closed September with 1.8 million shares in its portfolio (find more stocks Cohen was buying).

Nairn and his team had Illinois Tool Works Inc. (NYSE:ITW) as another of their five largest 13F holdings. Illinois Tool Works is a manufacturer of industrial equipment. Its P/E multiples are in the low teens, and in the third quarter of 2012 the company’s financial performance was about flat compared to the third quarter of 2011. Billionaire Ken Griffin’s Citadel Investment Group moved heavily into the stock between July and September (research more stocks Griffin was buying).

As it did with these other stocks, Edinburgh cut its stake in Microsoft Corporation (NASDAQ:MSFT) but the 7.2 million shares the fund owned kept the company in the top five picks. Microsoft has been one of Platinum Asset Management’s favorite stocks; Platinum is managed by billionaire Kerr Neilson. We are being cautious on Microsoft for now, as we are with Google; quite a bit of the company’s value depends on the reception and sales of Windows 8. The forward P/E is low at 8, but that is based on a temporary boost to earnings from sales of the new versions of Windows and Office.

Disclosure: I own no shares of any stocks mentioned in this article.

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