Portfolio Changes:Positions Sold in the Month: Tim Participacoes ( TSU)which fell below our required efficiency threshold for return on equity. It's right on the line, and it's a tough position to sell, since the company is the leading wireless provider in Brazil, an area which still has a lot of room for growth. There were no positions added during the month.
Highlights:Target ( MTGT) (+12.2%), the best performer in the month, announced fourth quarter profits which beat analyst expectations and announced Q1 guidance of $1.07 (fifteen cents higher than expected). While margins were affected due to intense holiday competition, the company appears to be executing almost flawlessly, even as profits are temporarily squeezed due to expansion in Canada. Most recently, the company announced February same store sales of 7%, which easily beat expectations of 5.2%. Target is obviously taking share from the likes of competitors such as Kohl's and Sears as management is dedicated to providing a better experience to its shoppers. A focus on fresh food offerings, its highly successful rewards card program, and its new smaller-format City Target stores are helping the company differentiate itself from the competition. Eaton Vance ( EV) (+9.1%) a new addition in January was our second best performer in the month. The company announced first quarter profits which beat estimates, although profits were driven primarily by investment gains. During the quarter, net outflows were $1.1 billion. The drag on outflows is due to the huge outflows (nearly $2.1 billion in the quarter) from the Eaton Vance Large Cap Value fund, which has lagged peers on a one and three year basis. Management did note that flows have turned positive and that net flows for the upcoming quarter will likely be positive. Eaton Vance does have about a 35% weighting in fixed income products, and therefore will not participate as much as other asset managers in a strong bull equity market. Yet, I like the diversification of the products and still think that Eaton Vance is a best of breed manager-one to own for an up or down market.
Lowlights:Miller Industries ( MLR), the largest manufacturer of tow truck and vehicle recovery equipment was the month's worst performer. While there was no company specific news, I can only assume the stock was down due to the announcement of February's auto sales reaching a four year high. Last month I noted that used automobiles currently have an average age of 10.8 years old (also an all time high), so I'm not surprised to see new auto sales surging. More new cars on the road replacing used vehicles means less need for towing services. Yet, the stock looks cheap- trading at 3.5x EV/EBITA, and there are still a lot of old cars on the road.
Portfolio Returns (Feb 1st to Feb 29th):
Target (TGT): +12.21%
Eaton Vance (EV): +9.05%
Tim Participacoes (TSU): +8.25% (Sold on 2/29/12)
Microsoft (MSFT): +8.19%
Procter & Gamble (PG): +7.27%
Mattel (MAT): +5.66%
Novartis (NVS): +4.76%
ExxonMobil (XOM): +3.86%
Copa Holdings (CPA): +3.69%
Intel (INTC): +2.54%
McGraw-Hill (MHP): +1.74%
UPS (UPS): +1.02%
Alfac (AFL): -1.43%
National Research (NRCI): -1.79%
PepsiCo (PEP): -3.37%
Norfolk Southern (NSC): -3.95%
Miller Industries (MLR): -5.21%
If you have any questions, comments or suggestions, feel free to message me on Twitter at @bostoncfa