Monsanto Company (MON) & Vinik Asset’s Top Five

Vinik left to start his own hedge fund, Vinik Asset Management, which has become a sector-focused fund. Vinik looks for specific value stocks within a sector that are poised for a breakout. Outlined below are Vinik’s top five stocks in his hedge fund, according to its recent quarterly filing with the SEC (check out Vinik’s small-cap picks).

Vinik’s top stock was Monsanto Company (NYSE:MON), which comes after a 72% increase in shares owned. The seed giant gets more than 70% of its revenue from corn, soybeans, canola, and cotton seeds, as well as vegetable and fruit seeds, including tomato, pepper and eggplant.

Monsanto posted February-ended quarterly EPS of $2.73, compared to $2.28 for the same period last year and blowing past the consensus estimate of $2.31. These better-than-expected results come as a result of higher corn revenue. An interim future driver for Monsanto Company (NYSE:MON)should be the continued success of the corn business, which will be spurred by developing nations, higher incomes in emerging markets and a general rise in populations across the world.

The number two stock in Vinik’s portfolio was Lennar Corporation (NYSE:LEN) after a 57% increase in shares owned. Lennar is one of the leading home-building companies; home-building operations account for almost 90% of its revenue. Lennar also looks cheap at only 13 times earnings, compared to major peers NVR, Inc. (NYSE:NVR) (26 times) and The Ryland Group, Inc. (NYSE:RYL) (38.5 times).

The company should perform nicely over the interim as the housing market stabilizes and shows signs of rebounding. Part of what is bringing home buyers back to the table are low interest rates and increased rentals, which have increased the affordability of homes (see why you should buy homebuilders).

Barrick Gold Corporation (USA) (NYSE:ABX) saw Vinik increase its shares owned by 12% and have the stock as its third-largest public-equity holding. The gold producer is expected to see a 10% fall in revenue for 2013, after a slight increase of 2.2% in 2012.

Barrick now trades around 6 times 2013 EPS estimates and has a dividend yield of around 4.3%. One possible catalyst includes a reversion closer to the physical commodity. The stock has previously under-performed physical gold. Even still, the recent fall of gold prices is a near-term issue for Barrick, and as the global macro-economic picture becomes brighter, the price of gold could fall further.

Despite a 49% sell-off in shares owned, Best Buy Co., Inc. (NYSE:BBY) remained one of Vinik’s top five stocks, coming in fourth. Year-to-date the stock is already up 125%; not a bad reason to take some shares off the table. Consensus expects a 5% decline in revenue in fiscal 2014, after a 1% fall during fiscal 2013.

Best Buy Co., Inc. (NYSE:BBY) has also been downsizing its real estate portfolio. In fiscal 2013, Best Buy closed 48 U.S. big-box stores, resulting in a 3.5% net reduction in domestic square footage. The company plans to close another five to 10 big-box stores in the U.S. in fiscal 2014.

Even still, I remain cautious about Best Buy Co., Inc. (NYSE:BBY) given the amount of physical retail landscape that is serving the consumer-electronics industry, especially considering that a majority of the industry’s purchases are moving online. Billionaire Ken Griffin of Citadel Advisors is another one of Best Buy’s top hedge fund owners, owning some 5.7 million shares (check out Griffin’s latest stocks).

Breaking into the top five was Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT), following a 118% increase in shares owned. Starwood remains one of the world’s largest hotel and leisure companies, with nine brands. With this positioning, the hotel should benefit nicely from higher demand thanks to increasing travel in major North American and international locations as the economy rebounds.

Starwood has already been seeing positive trends with group bookings up in the mid-single digits in fiscal 2012 year-over-year. As well, the company is disposing of unproductive assets. Since late 2010, Starwood has been transitioning to an asset light business model.

In the last four years ended 2012, Starwood earned $1 billion in cash through the sale of owned assets and looks to generate around $3 billion in hotel sales by 2016. The real tailwinds include a stabilizing European economy and improvements in China (see if Starwood is hot for a reason).

Vinik is a sector investor and it appears he’s betting on a rebounding economy. This includes its top bet on Monsanto Company (NYSE:MON), its largest stock holding. I am encouraged by the company’s prospects based on rising incomes in developing nations and an increase in populations worldwide.

I also think Lennar Corporation (NYSE:LEN) should continue to see upside in the housing market, as a rising tide (rebounding housing) lifts all boats (home-builders). However, I slightly disagree with Vinik’s third-largest stock pick, Barrick. Given the impending rebound in the economy, gold prices could see further downside. I am also cautious on Best Buy Co., Inc. (NYSE:BBY)’s turnaround efforts, but like Starwood’s prospects given its geographical exposure.

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.