Viking Global Investors starts new positions 3Q 2013

Part 2
Viking Global Investors starts new positions 3Q 2013 (Part 2 of 5)

Viking Global Investors starts new positions in LOW, BAC, DIS, BIDU, Sells BA, CX – 13F Flash (B)

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Viking Global Investors LP is an independent hedge fund management firm founded by Andreas Halvorsen, Brian Olson, and David Ott. It manages assets of around $20 billion and has offices in New York City, Greenwich, Connecticut, and Tokyo.

In Q3 2013, it started new positions in Lowe’s Cos. Inc. (LOW), Bank of America Corp. (BAC), The Walt Disney Co. (DIS), and Baidu Inc. (BIDU) and it sold Boeing Co. (BA) and Cemex SAB de CV (CX).

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

Why buy Bank of America Corp. (BAC)?

Bank of America Corp. reported an increase in net income to $2.5 billion in 3Q 2013 from $340 million in the same quarter of last year. Earnings per diluted share increased to $0.20 from $0.00 in the third quarter of 2012. It said relative to the same quarter last year, the results for the third quarter of 2013 were driven by reduced negative credit valuation adjustments on the company’s credit spreads and increases in equity investment income, net interest income, and investment and brokerage income. The company also benefited from improved credit quality and lower expenses. These factors were partially offset by lower mortgage banking income and the negative impact from remeasuring certain deferred tax assets due to the UK corporate income tax rate reduction enacted in July 2013.

Although the bank reported strong earnings, it is facing litigation and regulatory issues that have elevated its expenses. Recently, a New York judge dismissed a lawsuit against Bank of America over AIG disclosures. However, the bank has remained focused on increasing revenue and paring costs, making it a long-term growth candidate.

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Why buy The Walt Disney Co. (DIS)?

Disney reported a 7% increase in revenues in 4Q 2013, to $11.6 billion from $10.8 billion a year earlier, and a 12% increase in net profit, to $1.39 billion from $1.24 billion the previous year. Earnings per share were up 13%, primarily driven by growth in the company’s Interactive, Consumer Products, and Parks and Resorts businesses. Disney said it will continue to invest in expanding its Parks and Resorts businesses. It also expects to repurchase between $6 billion and $8 billion in stock during fiscal 2014.

The company announced it has scheduled the official release date for Star Wars: Episode VII on December 18, 2015. The company also announced a deal with Netflix Inc. (NFLX) to create multiple live-action series and a mini-series event exclusively, beginning in 2015. Under this agreement, Marvel TV will team up with ABC Television to develop an original TV series featuring four of Marvel’s most popular characters. The company said it is well positioned for continued growth in 2014, and it’s likely to benefit from the above developments in the long run.

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Viking Global Investors founder Andreas Halvorsen is a Tiger Cub, having previously worked at legendary investor Julian Robertson’s Tiger Management. The firm follows a global long-short equity strategy. It conducts fundamental research-intensive stock selection across all industries and uses a bottom-up approach in analyzing stocks. Rather than undertaking analysis to explain past performance, Viking Global Investors analyzes its existing portfolio to anticipate future performance. Investors meet with company management and conduct background checks on key personnel, interview suppliers, customers, and competitors. The firm’s portfolio managers review the company’s products and services and consult with industry experts. The fund’s investments are primarily in equity securities, but it also has holdings in debt, credit, derivative, and other financial instruments.

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