Amid Portfolio Cuts, Edinburgh Partners Remains Resolute On Favorite Stocks

Edinburgh Partners, one of Scotland’s biggest independent fund management houses, was co-founded by fund management industry veteran Sandy Nairn in 2003. The Edinburgh-based asset manager invests on behalf of a range of clients including pension funds, financial institutions and endowments, with an emphasis on absolute returns over a long-term time horizon. Edinburgh Partners attempts to identify and buy undervalued companies, and then hold these equity investments until share prices reflect those companies’ long-term earnings potential.

As Edinburgh Partners runs a number of long-only, unconstrained equity strategies and employs a long-term and often contrarian approach to investing, retail investors may find it relatively straightforward to mimic this investment firm’s moves. The Edinburgh-based asset manager recently submitted its 13F filing for the second quarter reporting period, which showed that Edinburgh Partners reduced the size of 12 of its positions, while boosting the size of just one position and adding one new addition to its portfolio during the June quarter. As a result, the overall value of the investment firm’s U.S.-focused equity portfolio decreased to $659.36 million from $887.77 million quarter-over-quarter. Are investors pulling money out of the Edinburgh-based asset manager? We can’t say for sure, but what we do know is that the portfolio cuts have not impacted Mr. Nairn’s confidence in his equity positions. With that said, let’s have a look at the asset manager’s five largest equity holdings as of the end of the June quarter, and discuss their performance of late.

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#5. PerkinElmer Inc. (NYSE:PKI)

 – Shares Owned by Edinburgh Partners (as of June 30): 1.23 Million

 – Value of Edinburgh Partners’ Holding (as of June 30): $64.41 Million

Edinburgh Partners trimmed its position in PerkinElmer Inc. (NYSE:PKI) by 29% during the June quarter to 1.23 million shares. The reduced position was valued at $64.41 million at the end of the quarter and accounted for 9.8% of the value of the investment firm’s U.S. equity portfolio. The provider of products, services and solutions to the diagnostics research, environmental, industrial, and laboratory services markets has seen the value of its shares advance by 4% since the beginning of 2016. PerkinElmer’s overall revenue for the first three months of 2016 increased by 2% year-over-year to $538.7 million, reflecting higher revenue driven by its OneSource service offerings within the research market, increased demand in the company’s newborn screening business, as well as an increase in demand in its laboratory services business, and food and environmental business. In late July, the company’s Board of Directors declared a quarterly dividend of $0.07 per share, which equates to an annual dividend yield of 0.50%. Ken Fisher’s Fisher Asset Management owns 685,785 shares of PerkinElmer Inc. (NYSE:PKI) as of the end of the June quarter.

#4. Johnson Controls Inc. (NYSE:JCI)

 – Shares Owned by Edinburgh Partners (as of June 30): 1.48 Million

 – Value of Edinburgh Partners’ Holding (as of June 30): $65.39 Million

The Scottish independent fund management firm reduced its holding in Johnson Controls Inc. (NYSE:JCI) by 470,088 shares during the April-to-June period, ending the second quarter with 1.48 million shares valued at $65.39 million. In late January, Johnson Controls, a global diversified technology and industrial leader offering heating, ventilation and air-conditioning tools, agreed to merge with Ireland-based fire and security provider Tyco International plc (NYSE:TYC). The soon-to-be combined company will maintain Tyco’s Irish legal domicile. The merger is anticipated to be consummated on September 2, sooner than previously planned. The new Treasury Department rules that blocked the mega-merger between Pfizer Inc. (NYSE:PFE) and Allergan plc (NYSE:AGN) were not an impediment to Johnson Controls’ proposed inversion. The combined provider of commercial-building systems will be renamed Johnson Controls International plc. Johnson’s stock has gained 14% year-to-date. John Zaro’s Bourgeon Capital has nearly 89,000 shares of Johnson Controls Inc. (NYSE:JCI) among its holdings as of the end of the second quarter.

The second page of this article will discuss Edinburgh Partners’ three-largest equity holdings as of the end of June.

#3. Whirlpool Corporation (NYSE:WHR)

 – Shares Owned by Edinburgh Partners (as of June 30): 405,439

 – Value of Edinburgh Partners’ Holding (as of June 30): $67.56 Million

The long-term-oriented asset manager owned 405,439 shares of Whirlpool Corporation (NYSE:WHR) at the end of June, 131,738 shares less than it did at the end of March. The reduced position was worth $67.56 million on June 30, and constituted 10.3% of the investment firm’s $659.36 million equity portfolio’s value. The well-known manufacturer of home appliances has seen its market value jump by 28% since the start of the year. Just recently, analysts at Raymond James downgraded Whirlpool to ‘Market Perform’ from ‘Strong Buy’, citing more difficult comparable-sales, a seasonally heavier promotional environment, and higher cost inflation for 2017. Meanwhile, analysts at JPMorgan increased their price target on the home appliances specialist to $210 from $205 and reiterated their ‘Overweight’ rating on it, saying that Whirlpool will likely outperform industry peers over the next year or so. The company’s financial and stock performance has been driven by strong U.S. demand for appliances, in contrast to the challenges it has faced overseas. Edgar Wachenheim’s Greenhaven Associates owns a stake of 2.63 million shares of Whirlpool Corporation (NYSE:WHR) as of June 30.

#2. QUALCOMM Inc. (NASDAQ:QCOM)

 – Shares Owned by Edinburgh Partners (as of June 30): 1.29 Million

 – Value of Edinburgh Partners’ Holding (as of June 30): $69.09 Million

The Edinburgh-based investment firm run by Sandy Nairn cut its position in QUALCOMM Inc. (NASDAQ:QCOM) by 21% during the three-month period ending June 30, to 1.29 million shares. The shares of the mobile chip maker are 21% in the green year-to-date, partially owing to a series of licensing deals with China’s largest manufacturers. Chinese consumers are switching from entry-level smartphones to LTE, short for Long Term Evolution, models, a trend that benefits Qualcomm’s chip sales. Qualcomm’s sales in China during the most recent quarter offset “spotty” sales in other regions. The maker of processors and modem chips for smartphones reported mobile chip shipments of 201 million for its third quarter of fiscal year 2016 that ended June 26, ahead of the company’s guidance of 175 million-to-195 million. Ken Fisher’s Fisher Asset Management had 9.69 million shares of QUALCOMM Inc. (NASDAQ:QCOM) in its portfolio at the end of June.

#1. Apache Corporation (NYSE:APA)

 – Shares Owned by Edinburgh Partners (as of June 30): 1.45 Million

 – Value of Edinburgh Partners’ Holding (as of June 30): $80.64 Million

Its Apache Corporation (NYSE:APA) holding was the largest in Edinburgh Partners’ U.S. equity portfolio at the end of the June quarter, accounting for 12.2% of the value of that portfolio. The Scotland-based asset manager reduced its position in Apache by 21% during the second quarter to 1.45 million shares valued at $80.64 million on June 30. The independent energy company that explores, develops and produces natural gas, crude oil and natural gas liquids has seen its market capitalization increase by 12% in 2016. Although Apache Corporation ran a cash-flow deficit for the first quarter, the company plans to achieve “cash flow neutrality” in 2016 under its current budget. During the first three months of 2016, the company operated 24 rigs on average and drilled and completed 79 gross-operated wells worldwide. Based on strong first quarter results, Apache raised its full-year North American Onshore production guidance to 268,000-to-278,000 BOE per day from its initial guidance of 263,000-to-273,000 BOE per day. Russell Lucas’ Lucas Capital Management owns approximately 6,000 shares of Apache Corporation (NYSE:APA) as of June 30.

Disclosure: None