By Dave Goodboy (Street Authority | Original Link)
My favorite stock screening method is to see what the big money owns, and then dig deeper from there. The concept behind this starting point is that the large hedge-fund and money-management firms have far greater collection of resources, computer power and talent than I, as an individual investor, could ever hope to yield.
By following the big money via their 13F filings, it’s possible to discover profitable stocks, investing themes and other tricks of the trade. Because of their size, large funds are often forced to hold positions in stocks for the longer term.
Therein lays the advantage the individual investor has over the 13F filing behemoths. Individuals can observe what the big guys have done, watch the performance of their investments, then decide which one of the pre-screened names makes sense to buy. This knowledge combined with the small-scale flexibility in trading provides the individual investor an edge over the big guys. (And who knows? You might even get it for a better price than they did, too.)
This is how I discovered an intriguing pattern with one of the largest money-management firms in the world, Lazard Asset Management.
Lazard was founded in 1848, and manages a monster-sized stock and bond portfolio of $41 billion. Clearly, decision makers at this level are in the price-driving, market-moving category, and are thus worth studying.
The interesting pattern with Lazard’s stock investments is that out of its 15 largest holdings, five are American depositary receipts (ADRs). ADRs are securities of non-U.S. companies that trade in U.S. markets. In other words, you can buy shares of these international companies on the New York Stock Exchange just like you can a domestic company.
While this peaked my interest, the fact that four of the five ADRs Lazard owns are in the telecommunication business in Russia, China, Philippines and Latin America, forced a very important question: Do telecommunication ADRs make sense as investments right now?
Not only do I like the fact that Lazard is heavily invested in telecom ADRs, but the fact that ADR telecom stocks dominate the list of the top international dividend-paying companies is a compelling reason to invest.
Let’s briefly drill down into their two largest telecommunication holdings and look at their stock fundamentals…
1. Philippine Long Distance Telephone Co. (NYSE: PHI)
This Philippine telecom service company has a market cap of $12.62 billion and is Lazard’s largest telecom holding. An operating margin of 32.2%, a 9.4% return on assets, and second-quarter revenue that expanded by 13.8% in comparison with the year-ago period indicate that the company is efficient and growing. But also in the second quarter, net income declined by 6.1% year-over-year, possibly throwing up a red flag on the otherwise solid fundamental picture.
Lazard holds nearly $1 billion of this ADR, and the company has a sweet trailing dividend yield of almost 7%. The ADR goes ex-dividend on Aug. 28.
Technically, shares spiked higher starting on June 1 but hit resistance at $66, forming a double top. The price has since dropped back and bounced off the 50-day simple moving average. A break-out above the $66 per-share level appears to be a smart technical entry.
2. China Mobile (NYSE: CHL)
Lazard’s second-largest telecom holding, with a $684 million stake, is one of China’s three major state-owned telephone companies. It boasts 144 million mobile subscribers, an increase of 14% since the start of the year. Plus, it recently launched service for the iPhone.
But the company is getting squeezed by increased competition and high costs. Profits in the first half of 2012 plunged by 8.3%, reflecting the new competitive environment. The company is betting that the iPhone service roll-out will improve this situation.
China Mobile went ex-dividend on May 17 and has a trailing annual dividend yield of 4.0%. As you can imagine, the company was knocked down hard on the profit plunge. The stock price dropped from about $59 a share before finding support in the $53 area, creating a solid value-zone “buy” opportunity.
I like this stock right now as a buy with a target of $59 and stop loss at $51.
Risks to Consider: Although I strongly think that large financial institutions that own huge stakes in companies is a clear signal that the stock may make sense to buy, this is far from a sure thing. Even firms like Lazard, with all their resources, make mistakes in their investments. Always conduct your own due diligence before investing, regardless of the level of institutional interest.
Action to Take –> After looking at these two stocks’ fundamentals and technicals, I can see why Lazard owns them. Between the two, my favorite is China Mobile. I think the iPhone rollout could be a huge success. Combine this with the value-zone technical picture and it provides a strong case for the company at this level. I also like Philippine Long Distance for its powerful dividend yield and the overall growth prospects of the Phillipines. However, I would wait for a break out to buy.
Dave Goodboy is vice president of marketing for intrendX llc, a New York City-based marketing service to ultra-high net worth family offices and individuals. He also … Read More
Do You Own Gold?