BALTIMORE (Stockpickr) -- Do you have an employer-sponsored pension account paying for your retirement? Chances are that the answer is "no." Pensions have gone the way of the dodo in recent years, as U.S. employers looked to cut costs by cutting retirement benefits.
Indeed, only a small minority of jobs -- such as airline employees and state and Federal workers -- still offer pensions as part of the perks. And as we've seen in recent years, those pensions can go under the knife if an airline or automaker goes belly up.
But even if you don't have a pension, pension funds could help to fund your retirement. And you don't risk getting your nest egg smashed if the plan sponsor goes belly up.
How? Despite the decline of the pension plan, the ones that remain still manage a huge amount of money. Today, pensions big enough to report to the SEC managed almost $400 billion of combined cash. That's a big number, especially when you consider that it's made up of fewer than 40 individual pension funds.
With those kinds of cash concentrations, pension funds employ talented investment teams with serious institutional investing resources. And by taking a look at the investments pensions are piling up for their own retirees, we can take advantage of some of that research muscle for ourselves. To do that, we've got to crack some 13F filings.
Institutional investors with more than $100 million in assets are required to file a 13F, a form that breaks down their stock positions for public consumption. From hedge funds to mutual funds to insurance companies, any professional investors who manage more than that $100 million watermark are required to file a 13F. That includes pension funds.
By comparing one quarter's filing to another, we can see how any single manager is moving their portfolio around -- and which investments are faring the best for them. More important, we can figure out which names pension fund investors are buying as a group.
Today, we'll focus on pension funds' five favorite stocks for the most recent quarter.
$32 billion pharmaceutical name Actavis (ACT) is first up on the list. Actavis has undergone some significant changes in the last year, after a combination with Watson Pharmaceuticals and the acquisition of Warner Chilcott, both of which dramatically increase the firm's scale.
Pension funds like what they see. They picked up 768,780 shares of the stock, essentially doubling their stake in Actavis.
While patent expirations have been a major black cloud for most pharmaceutical firms, they've actually been a positive thing for Actavis. The firm's positioning as the third-largest generic drug maker in the world means that it benefits when lucrative drugs lose patent protection. The Watson deal also gave ACT considerable exposure to attractive emerging markets, such that international sales now make up around 40% of generic drug revenues.
Actavis isn't relegated to generics, however. The Warner Chilcott acquisition expands the branded drug business considerably, and it gives the firm claim to bigger margins. The decision to make the Warner Chilcott deal stock-for-stock also means that ACT is left with a better-looking balance sheet than if it used debt to finance the deal. As investors start to squirm under the pressure of a broad market correction in 2014, that balanace sheet strength should come in handy.
The last year has brought strong returns for shareholders in Walt Disney (DIS). Shares of DIS have rallied almost 32% in the trailing 12 months, nearly doubling the performance of the S&P 500 over that same period. Pension funds have gotten in on the act too; they added 191,420 shares of Disney to retirees' portfolios in the most recent quarter.
Disney may be best known for Mickey Mouse and Donald Duck, but it earns more than half of its operating profits from TV networks such as The Disney Channel and ESPN. ESPN, in particular, is a cash cow for Disney -- it's the most valuable cable network in the world, and it generates around three-quarters of the segment's revenues.
That said, the firm's legacy businesses are no slouch either. While films tend to drive lumpy revenues, the intellectual property they create throws off a mountain of cross-selling opportunities that benefit the greater Disney organization, from theme parks to lunch boxes.
With an intellectual property portfolio that includes some of the most valuable characters in film and TV, Disney is well-positioned to take advantage of upticks in consumer spending in 2014. That extends to theme parks, a unit of Disney that got hit the hardest during the recession and then took the longest to recover.
With consumers buying again, Disney should extend its rally this year.
Pension fund managers "friended" Facebook (FB) in a big way last quarter, adding 1.11 million shares of the social network to their portfolios. That's proved to be some good timing: The $159 billion firm has climbed almost 30% higher in the last three months thanks to key improvements in its mobile advertising business. So does it still make sense to own in 2014?
Facebook owns one of the most valuable properties on the Internet; users spend more time on Facebook that on any other Web site today. Better, the firm has access to deep-reaching information about its members, information that can be leveraged to serve highly targeted advertising to a demographic that's more challenging than ever to sell to.
But the fact remains that users don't log onto Facebook in order to find business opportunities or buy scented candles -- they log on to connect with their friends. Until Facebook can bridge that gap, it deserves to trade at a discount to online ad rivals like Google (GOOG), which have much more direct sales funnel.
The leaps and bounds made in mobile last quarter do provide a glimmer of hope for Facebook's shareholders. Mobile devices are undeniably the most important medium for logging onto social networks today, so the fact that FB is engaging mobile users is promising. So is the lofty valuation put on rival Twitter (TWTR).
Facebook is worth owning right now, if only for the fact that it's been one of the few names that's avoided the last month's correction.
Boeing (BA) has had a stellar year in large part because its customers are having stellar years. The airline industry has been on fire for the last 12 months, gaining steam as it comes off of a cyclical low. That, coupled with a critical product launch in Boeing's new 787 Dreamliner platform, has spurred a 63% rally in shares in the last year. Pension funds picked up 131,810 shares of Boeing in the last quarter.
Boeing operates in a duopoly with Airbus, manufacturing large commercial airliners for major air carriers across the globe. With oil prices sitting on the high end of their historic range, Boeing's introduction of next-gen more efficient aircraft creates a relatively simple cost-benefit analysis for operators. That's particularly true of the re-engined 737, which combines a proven, familiar airframe with dramatically more efficient power plants.
While Boeing jets are most familiar to consumers, more than 40% of sales come from a less familiar sector: national defense. With a number of large, long-term, defense-critical contracts under its belt, Boeing provides all of the benefits of a typical defense contractor without the crises every time Congress drops the ball on the budget. Boeing's $440 billion backlog does a good job of tamping out earnings concerns -- and shares remain momentum winners as we get deeper into 2014.
Hain Celestial Group
Mid-cap organic foods and personal care product maker Hain Celestial Group (HAIN) is another name that's had some stiff tailwinds pushing at its back in the last year. Since February 2013, HAIN has rallied more than 57%. Pension funds add 477,170 shares to their portfolios in the last quarter, adding up to a total investment of $51 million at current price levels.
Hain's portfolio of brands includes Arrowhead Mills, Celestial Seasonings, Soy Dream and Terra -- names that have gone from obscure to grocery store staples in recent years. Consumers have been spending more on organic products for the last decade, and as shoppers allocate more of their budgets to health, Hain should continue to see double-digit growth rates. Even though selling prices are higher than conventional foods, higher-than-average input costs typically offset the margin gains -- but because HAIN owns a large collection of organic brands, it's able to keep distribution costs lower. As the firm invests in its distribution network, margins should have room for improvement.
International sales are another important growth opportunity for Hain. Today, around 28% of the firm's sales come from overseas, but that number should increase thanks to investments in European organic foods brands. This stock is far from cheap right now, but the valuation premium looks justified by HAIN's growth pace.
Upside has been orderly in HAIN for the last few months. I'd recommend waiting for shares to find support before jumping into this name.
To see these stocks in action, check out the Q4 2013 Pension Fund Buys portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.