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Seminole Capital Management’s Top Stock Picks: Cisco, Vodafone, GE

Seminole Capital Management was founded in 1995 by Michael Messner, a former civil engineer. The fund specializes in technology stocks, though it invests across different sectors, and recently filed its 13F for the second quarter of 2012. Seminole Capital Management doesn’t recommend or endorse any of the stocks or analysis in this article, and we have no relationship with the fund, but based on SEC filings these are our opinions of what they are thinking. Read on to see the fund’s largest reported positions or compare them to previous filings.

Cisco Systems, Inc. (NASDAQ:CSCO)

Seminole’s largest position at the end of June was in Cisco Systems Inc. (NASDAQ:CSCO). The fund owned 7.6 million shares, up from the 3.7 million that it had owned at the end of March. For the first quarter, Cisco made our list of the ten most popular technology stocks among hedge funds. Cisco Systems Inc (NASDAQ:CSCO) has beaten earnings expectations each of the last four quarters, and current sell-side expectations imply a forward P/E ratio of only 9. In its most recent quarter revenue and margins both increased compared to the same quarter in 2011. Cisco Systems Inc. (NASDAQ:CSCO), as with many technology companies, has significant cash on its balance sheet.

Wireless company Vodafone Group Plc (NASDAQ:VOD) was Seminole’s second largest position according to the 13F as the fund reported a stake of 4 million shares, up from the 2.7 million it had owned at the end of March. Vodafone’s business has been weakening recently- its earnings in its most recent quarter were down 35% from the same period the previous year, and the stock, up 6% for 2012, is slightly underperforming the broader market. Vodafone Group Plc (NASDAQ:VOD) does trade at only 11 times forward earnings, putting it in good value territory for a $150 billion market cap company with a strong dividend yield.

Seminole initiated a 4.9 million share position in General Electric (NYSE:GE) in the second quarter. The company’s stock has risen 39% in the last year and it currently trades at a forward P/E of 12 and a five-year PEG ratio of 1. The broad-based company engages in a number of technology-related spaces and the 3.2% dividend yield is attractive as well.

Hedge fund darling Apple Inc. (NASDAQ:AAPL) topped our rankings of the ten most popular stocks among hedge funds for the first quarter, and at the time it was Seminole’s top position. However, over the course of the second quarter Seminole cut its position from about 590,000 shares to about 150,000 shares- roughly 75%- bringing it down to the #4 slot. Perhaps the tech-oriented Seminole is skeptical that Apple Inc. (NASDAQ:AAPL) will be able to continue its history of abnormal returns as competitors move in on its business, or perhaps it is ignoring a reasonable trailing P/E of 15 and taking profits.

Rounding out Seminole’s top five positions list is Delta Air Lines (NYSE:DAL), as the fund more than doubled its stake in the airline to 7.7 million shares from the 3.5 million shares it had owned at the beginning of the second quarter. We covered a large insider buy at Delta earlier this month and noted that according to valuation metrics the stock is very cheap- a forward P/E of 3 and a five-year PEG of 0.1. However, investors may be leery of investing in a major airline given the exposure to fuel costs and travel activity.

Seminole shook up a number of its positions in the second quarter. We see it moving slightly away from technology and towards the broader economy as it added GE to its portfolio and more than doubled its Delta position while cutting its stake in Apple. GE and Delta are also both driven by macro factors rather than consumer preferences, possibly reflecting some economic bullishness on the fund’s part.

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