William von Mueffling founded Cantillon Capital Management in 2003 after a very successful stint at Lazard. The fund originally followed a long/short strategy, but von Mueffling and his team converted it to long-only in 2005. In recent quarters it has primarily invested in consumer and technology stocks. Cantillon recently disclosed some of its long equity positions as of December 31st, 2012 in a 13F filed with the SEC. Read on for our quick take on the fund’s five largest positions and compare them to what Cantillon has owned in the past.
Google Inc (NASDAQ:GOOG) was the top pick from the 13F, with Cantillon reporting a position of about 410,000 shares, roughly even with what it owned three months earlier. Google trades at 23 times trailing earnings, as the recently added Motorola Mobility business has thus far negatively impacted the bottom line. The sell-side forecasts an improvement at the company, with earnings consensus for 2013 implying a P/E of only 16, but we think that we’d like to see the actual results improve and so we’d hold off on buying the stock for now. Google was one of the most popular stocks among hedge funds in the third quarter of 2012 (see the full top ten list).
Cantillon owned 8.2 million shares of Oracle Corporation (NASDAQ:ORCL). Oracle’s most recent fiscal quarter ended in November 2012 with the company seeing modest growth on the top line but 18% higher net income than in the same period in the previous fiscal year. As a result we’re not sure how sustainable that earnings growth rate is, and the trailing P/E is a not entirely exciting 16. Oracle was one of the Baupost Group’s top picks in Q3; Baupost is managed by value investor Seth Klarman (find more of Klarman’s favorite stocks). This is another stock that we’d put on a watchlist but not be buying at this time.
The fund slightly trimmed its stake in The Coca-Cola Company (NYSE:KO). Coca-Cola is, of course, Warren Buffett’s favorite stock; Berkshire Hathaway owned 400 million shares at the end of September, giving it a position worth over $15 billion at that time (check out Warren Buffett’s stock picks). We actually think that Coca-Cola is a bit expensive right now, with a trailing P/E of 19 and very little growth in its most recent quarterly report versus a year earlier. It is a defensive stock, with a beta of 0.4 and a dividend yield of nearly 3%, but we’re not particularly bearish at this time and think there are plenty of good values with little market exposure.
Another tech and another consumer pick rounded out Cantillon’s top five:
$13 billion market cap integrated circuits manufacturer Analog Devices, Inc. (NASDAQ:ADI) was another of Cantillon’s top picks. Analog’s business has been slightly weaker than a year ago, and again the earnings multiples aren’t particularly attractive: the stock carries trailing and forward P/Es of 20 and 16, respectively. Renaissance Technologies, whose success since inception has made founder Jim Simons a billionaire, owned 3.7 million shares of the stock at the end of September (research more stocks Renaissance owned).
Cantillon’s fifth largest 13F holding was Colgate-Palmolive Company (NYSE:CL) as von Mueffling and his team kept their holdings about flat at 1.9 million shares. Paul Ruddock and Steve Heinz’s Lansdowne Partners roughly doubled the size of their own position in Colgate between July and September and had 3 million shares at the end of the third quarter. Colgate trades at 18 times expected earnings for 2013, which again seems high even for a consumer staples stock with a low correlation to market indices. Neither revenue nor earnings changed by more than 2% between Q3 2011 and Q3 2012, and so we don’t think that it makes sense to buy the stock at the current price.
Disclosure: I own no shares of any stocks mentioned in this article.
