Mairs & Power is a Minnesota-based hedge fund with $4.32 billion worth of assets invested in 52 holdings in its U.S. public equity portfolio. In its third-quarter letter to investors, Mairs & Power offered a bullish outlook on the U.S. economy, as it expects positive earnings and revenue growth for the S&P 500 during the fourth quarter. The fund also talked about its important moves during the third quarter and discussed its take on various equities.
In this article we’ll find out which stocks attracted the attention of Mairs & Power in the third quarter and analyze overall hedge fund sentiment towards each of them.
Through extensive research that covered the portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details).
Mairs & Power Plans to Retain Its Stake in Abbott Laboratories
Mairs & Power likes Abbott Laboratories (NYSE:ABT) and plans to retain its stake in the company, which recently acquired medical device company St. Jude Medical for $25 billion to improve its heart and neurological devices business. The deal is, however, facing some pressure from the EU. On Thursday, Abbott Laboratories (NYSE:ABT) offered concessions as it seeks approval for the acquisition. The European Commission is now set to give a verdict on the deal on November 9. Mairs & Power boosted its stake in Abbott by 683.33% in the third quarter, ending the period with about 470,000 shares of the company. Abbott earned $0.59 per share on $5.3 billion in revenue during the third quarter, narrowly above analysts’ forecasts of $0.58 in EPS on $5.29 billion in revenue. At the end of the second quarter, 47 funds tracked by Insider Monkey were bullish on Abbott Laboratories (NYSE:ABT). Peter A. Wright’s P.A.W. CAPITAL PARTNERS owns 14,000 shares of Abbott Laboratories as of the end of the third quarter.
Alphabet Has Strong Competitive Advantage
Mairs & Power’s investor letter discussed Alphabet Inc (NASDAQ:GOOGL) as a kind of stock that “fits” the fund’s investment approach. The fund thinks the holding company of Google has a sustainable competitive advantage, an above-average growth rate, and attractive valuation. Mairs & Power reported that it dumped some of its positions which became M&A targets to allocate money towards companies like Alphabet. The hedge fund holds 42,000 shares of Alphabet Inc (NASDAQ:GOOGL) as of the end of the third quarter. Alphabet reported third quarter EPS of $9.06, topping analysts’ consensus estimate of $8.64, while revenue of $22.25 billion was also above the estimates of $22.05 billion. Oppenheimer recently slappen an ‘Outperform’ rating on the company’s stock and lifted its price target on it to $1,000 from $970. At the end of the June quarter, 187 funds tracked by Insider Monkey owned either the Class A or Class C shares of Alphabet Inc (NASDAQ:GOOGL), or both.
On the next page we’ll take a look at two other stocks discussed by Mairs & Power in its latest investor letter.
Mairs & Power Sells MTS Systems
Mairs & Power unloaded its position in Minnesota-based test systems industrial sensors producer MTS Systems Corporation (NASDAQ:MTSC) in the third quarter, after the company’s $580 million acquisition of New York-based private company, PCB Group. The hedge fund had “concerns” about the execution being displayed by MTS Systems, and felt the rationale behind the acquisition of PCB Group was not “solid”. The letter added that the acquisition of PCB is an addition to MTS’ sensors business, an area where the company has no competitive advantage, while MTS’s durable competitive advantage in its core business is being diluted. As of the end of the second quarter, John W. Rogers’ Ariel Investments owns 1.63 million shares of MTS Systems Corporation (NASDAQ:MTSC).
Don’t Miss: Best Smartphones With Temperature Sensors
Wells Fargo Will Get Out of its Current Problems
Mairs & Power explained its rationale behind holding on to its stake in Wells Fargo & Co (NYSE:WFC) in spite of its recent scandal, which has resulted in a $185 million fine, the laying off of over 5,000 employees, and a decimated reputation. Mairs & Power’s letter explained that it knows several top executives at Wells Fargo, and that they are of “good character”, and the fund thinks that the latest scandal does not depict a systematic problem within the company or its values. Mairs & Power does however expect slower growth for Wells Fargo in the near future. Nonetheless, the fund thinks that Wells Fargo is being “overly punished” by the market for its recent woes. Wells Fargo recently warned investors that its litigation losses could reach $1.7 billion. Ken Fisher’s Fisher Asset Management owns 18.19 million shares of Wells Fargo & Co (NYSE:WFC) as of the end of September.