As we enter earnings season for the first quarter of 2014, we are also seeing a number of 13F filings roll out ahead of the May 15 deadline as well.
The California Public Employees Retirement System is one such asset manager whose 13F can provide a fair amount of clarity to retail investors.
CalPERS is the largest public pension fund in the U.S., carrying a staggering market value of $288 billion as of this month. Capital is divided across strategies emphasizing growth, income, liquidity and real assets, among others. Its equity holdings posted a gain of 25.6% last year, with total assets gaining 16% in 2013, the largest appreciation in 11 years.
Why are retirement funds good vehicles to emulate?
Particularly in a post-recession world, public pension funds take a more risk-averse stance than other volatile investment vehicles. While hedge funds may take more speculative positions with a larger percentage of their capital, managers of retirement funds often keep risk-adjusted returns and capital preservation high on their list of objectives.
In CalPERS' case, however, proper risk management does not necessarily equate to making passive investments and then sitting back. The pension fund has had a long history of flexing its large shareholder muscles to effect corporate governance in companies like General Motors (NYSE: GM), the Walt Disney Co. (NYSE: DIS), and the NYSE. Its hopes have been that good governance translates to improved performance, although some have seen this activism as more detrimental than helpful.
Of the $69 billion in positions CalPERS declared on its first-quarter 13F, three stood out as the largest new positions initiated by the fund last quarter, possibly outlining opportunities for future value.
Perrigo Co. (NYSE: PRGO) stood out as the biggest initiation made by CalPERS last quarter, garnering around $45 million of the retirement fund's capital. The $19.4 billion health care company develops and manufacturers many over-the-counter and generic prescription medicines. They are labeled as store brands in retailers all over the world, including Wal-Mart (NYSE: WMT), CVS (NYSE: CVS) and Walgreen Co. (NYSE: WAG). (Incidentally, my colleague Adam Fischbaum profiled this drugstore chain rivalry last week.)
Perrigo has a strong growth plan, entering into a number of expansion agreements so far in 2014, with two being made last month (at a cost of $66 million). Wall Street is fond of the growing pharmaceutical, with analysts at RBC naming PRGO a "top pick," pegging a $187 price target, which represents about 25% upside from current levels.
Santander Consumer USA Holdings (NYSE: SC) made an appearance in CalPERS' portfolio in the same quarter its stock went public (its IPO was in January). Based in Dallas, this firm is the U.S. auto-lending and consumer finance arm of Spanish megabank Banco Santander (NYSE: SAN).
It seems that CalPERS treaded more softly with Santander versus Perrigo, choosing to only allocate around $9.5 million to the stock. Its IPO debuted at $24 and has slumped slightly since, registering a 4.6% loss. However, Wall Street continues to look positively on SC, with Moody's, J.P. Morgan, Deutsche Bank and others offering positive sentiments.
Laredo Petroleum (NYSE: LPI) was CalPERS' third-largest new position, with nearly $9 million of the oil exploration and production company's stock. If you recall my analysis of what I believe to be America's next great oil play, you'll remember Laredo operates in the same area (the Permian Basin in West Texas) and sees "significant potential" in the region's reserves.
The company's positive outlook on its drilling zones has translated into a sharp increase in stock price; LPI is up over 82% in the past 12 months. Is there still room to grow? Analysts say yes, forming a mean one-year price target that leaves another 15% in appreciation from current levels.
Risks to Consider: The breadth of research and influence available to such large investment managers means they are competing on a whole other scale. We can never be entirely sure of the decisions driving their investments unless we're "in the room," so to speak. However, that does not mean we can't infer some useful information from their filings, especially by following investment managers like retirement funds.
Action to Take --> Scouring 13F's for newly initiated positions can lead to hidden value or surprising opportunities that might not normally appear on most investors' radars. CalPERS has taken some interesting views in their portfolio for 2014 (and possibly beyond), and these three stocks would make a great addition to most any portfolio.