Tar Heel Stock-Picking: National Oilwell Varco, Atwood Oceanics

While the Tar Heels may be a best known college basketball program, there's another team at the University of North Carolina at Chapel Hill that's worth looking at.

UNC's Applied Investment Management (AIM) program enables the school's best and brightest MBAs to mange over $1 million in real capital. Here's a look at how the AIM class of 2008 picked their best-performing stock holdings.

AIM Quick Facts

  • Established: Early 1950s
  • Membership: 24
  • Money under management: $1.9 million (approximate current value)
  • Benchmark: S&P 500
  • Number of holdings: Approximately 35 equity names
  • Time-horizon: Long-term, appreciation
  • According to AIM student Tom Shohfi, UNC's AIM program is one of the oldest student-run investment funds in the country. The program's original fund, the aptly named Reynolds Fund, was started with "tobacco money in the early 1950s."

    The class of 2008 managed two funds in the AIM program (the Reynolds Fund and the Cherry Hill Fund), valued at just over $1.3 million.

    While other schools sometimes allow students to use margin in their programs, this past year, AIM's managers were forced to use a vanilla long-only strategy. "We're not allowed to use leverage and we're not allowed to go short with our current rules," explains Shohfi.

    Shohfi adds, "The fund can only apply leverage through the use of derivatives and that's limited to two times the assets under management."

    "At the current point in time, being a long-only fund is one of our weaknesses, but we're making changes based on how other student-run funds are changing and based on how the industry's changing," says Shohfi.

    Next year's AIM class will be allowed to short. (For more on shorting, read " How to Beat the Street: Short-Selling."

    Even with the fund's limitations, the Tar Heel money managers were able to keep market meltdowns at bay, since they took control of the fund last April -- one of the toughest 12 months investors have seen in a while. One of the biggest ways they managed that was by making good market bets that paid off.

    Where is their money now?

    Don't Count the Financials Out This Year

    Writedowns aside, AIM sees a future in financial stocks over the next six to nine months. "We do like the financials," says Shohfi, "and we established positions in some really beaten down companies that we think can rally significantly." With the financial companies, Shohfi acknowledges that "there's a lot of room for upside because there's certainly been a lot of downside."

    Financial names the AIM students like include BB&T ( BBT) and E*Trade ( ETFC) -- two stocks that are up over 20% since January.

    But despite those impressive numbers, financials were not what fueled AIM's portfolio performance.

    AIM's Top 5 Gainers

    1. National Oilwell Varco (NOV) and 2. Atwood Oceanics (ATW)

    Shohfi and company felt that investing in two oil-centric businesses, such as National Oilwell Varco and Atwood Oceanics was bound to be a good play. And over the past year, it certainly has been. The value of AIM's National Oilwell Varco position is up around 63% and its Atwood Oceanics stake is up around 42%.

    "Oil has risen nearly 70% since we took over the fund," notes Shohfi. But with oil lingering around an all-time high, energy is making AIM students a little nervous these days.

    "We feel energy has played out, says Shohfi. "We have trimmed AIM's energy holdings, but will likely preserve full portfolio weightings in both these names National Oilwell Varco and Atwood Oceanics. Rigs and exploration were our favorite theme."

    3. Nokia (NOK)

    What was one of the key drivers behind AIM's position in Nokia (which is up 34% for the fund)?

    The student stock-pickers were impressed by Nokia's international presence. According to Shohfi, 40% of the cell phones in India are Nokias and the company's position in the rest of Asia is just as significant. " Nokia has done very well versus the NASDAQ and even the EEM the iShares MSCI Emerging Markets Index Fund ( EEM) and has crushed its peer Motorola ( MOT)."

    However, with AIM's Nokia position up 34% return, the group is now taking a second look the company's broader sector. "At this point, we are considering alternatives as many 'high fliers' in tech have since sold off and may offer more attractive entry points."

    4. America Movil (AMX)

    The Tar Heel investors' interest in mobile phones extended to Latin America.

    One of the things that made Mexico-based America Movil stand out for the AIM (up 25% for the group) was its impressive 20% sales growth. "Compare that with Verizon ( VZ), which grew its sales by single digits," says Shohfi. (America Movil is also owned by Ohio State University's Student Investment Management program.)

    5. NASDAQ OMX Group (NDAQ)

    Mergers were one of the things that made AIM take a look at investing in the NASDAQ, not just on it.

    "NASDAQ has one of the world's best electronic platforms," says, comparing the exchange to competitors like NYSE Euronext ( NYX), CME Group ( CME) and IntercontinentalExchange ( ICE).

    Shohfi adds, "Through our holding period, it has outperformed all three of its competing exchanges."

    So far, the value of AIM's NASDAQ holding has increased 22%.

    The AIM Class of 2009

    On April 30, the AIM funds were handed over to a new class of UNC MBA students and augmented so that the assets under management now total $1.9 million. What will be AIM's best-performing investments over the next 12 months? To find out, stay tuned to TheStreet.com.

    Jonas Elmerraji is the founder and publisher of Growfolio.com, an online business magazine for young investors.

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