Recently, Philip Falcone's hedge fund firm Harbinger Capital Partners made a series of disclosures that unveiled three new portfolio positions. Firstly, in a 13G filed with the SEC, Harbinger Capital Partners has disclosed a brand new position in Superior Well Services (SWSI). The filing was made due to activity on December 24th, 2009 and they now have a 5.6% ownership stake in the company with 1,714,300 shares. These new portfolio disclosures come right after we saw Harbinger unload shares of Calpine (CPN) and adjust two other positions.
Secondly, Harbinger has also filed a 13G with the SEC in regards to shares of Strategic Hotels & Resorts (BEE). The disclosure was made due to activity on December 24th, 2009 and they have a 5.6% ownership stake with 4,205,000 shares. This is yet another brand new position as they previously did not own any shares as per their SEC filings.
Lastly, we also see that Harbinger has been active in international markets. On the 21st of December 2009, the London Stock Market news service reported that Harbinger Capital held an interest of 90,909,091 ordinary shares of Sable Mining Africa Limited (AIM: SBLM) or 15.1% of the issued share capital and voting rights of the Company. Sable is a brand new holding for Harbinger and in the past we've detailed the rest of Harbinger's UK positions as well. If you're unfamiliar with our new series of tracking hedge fund positions in UK markets, we posted a preface here.
Sable Mining Africa Ltd is a small company listed on the AIM market in London. The company was re-named in November and used to be called BioEnergy Africa. It has seen a fundamental change in strategy over the last few months with a move away from bio-ethanol related assets into mining related energy assets. Sable Mining is now focused on the acquisition or investment in early stage coal and uranium assets or businesses, with a particular emphasis on Namibia, Botswana, Zimbabwe and Zambia. The company intends to be an active investor in an attempt to add value both operationally and strategically to the businesses it acquires or invests in. The company’s objective is to own entire or majority interests in suitable businesses or assets rather than holding minority investments. To facilitate the new strategy, the company undertook a fundraising, via a placement of new ordinary shares in December 2009. It is likely that Harbinger bought their shares in the placement at a price below the quoted market share price. (For cricket enthusiasts: the Chairman of Sable is ex-England slow left arm bowler, Phil Edmonds).
Taken from Google Finance, Superior Well Services "provides a range of wellsite solutions to oil and natural gas companies, primarily technical pumping services and down-hole surveying services. Technical services include technical pumping, down-hole surveying and completion, production and rental tool services. Fluid logistics services include those services related to the transportation, storage and disposal of fluids that are used in the drilling, development and production of hydrocarbons."
Strategic Hotels & Resorts "operates as a self-administered and self-managed real estate investment trust (REIT). SHR owns and asset manages upper upscale and luxury hotels that are subject to long-term management contracts. The Company conducts its operations through its direct and indirect subsidiaries, including Strategic Hotel Funding, L.L.C (SH Funding). The Company’s existing hotels are operated under brands of Fairmont, Four Seasons, Hyatt, InterContinental, Loews, Marriott, Ritz-Carlton and Westin."
For other recent maneuvers out of Falcone's hedge fund, head to our post on Harbinger's portfolio adjustments.
Thursday, January 7, 2010
Hedge Fund Harbinger Capital Reveals Three New Positions
Wednesday, January 6, 2010
Roberto Mignone's Hedge Fund Bridger Management Added Tons Of Long Exposure In Q3
This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.
This is the first time we've covered Bridger Management in our 13F analysis series. Bridger Management is the hedge fund firm founded by Roberto Mignone in 2000. They currently have around $4 billion in assets under management and run a long/short equity and event driven strategy focused on intensive fundamental research. Before Bridger, Mignone co-founded Blue Ridge Capital with John Griffin in 1996. And before that, Mignone (like Griffin) worked at Julian Robertson's Tiger Management and as such joins the ranks of other prominent 'Tiger Cub' hedge funds. Mignone received his degree from Harvard and his MBA from Harvard Business School. Our only previous coverage of Bridger includes their position in Cardiome Pharma (CRME).
Keep in mind that the positions listed below were Bridger's long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.
Some New Positions
Brand new positions that they initiated last quarter:
Berkshire Hathaway (BRK.A)
Waste Connections (WCN)
Carmax (KMX)
Apple (AAPL)
Exxon Mobil (XOM)
International Game Technology (IGT)
Royal Caribbean (RCL)
Intel (INTC)
Invesco (IVZ)
Amgen (AMGN)
Microsoft (MSFT)
Immucor (BLUD)
Copart (CPRT)
Boston Scientific (BSX)
Pall (PLL)
Continental Airlines (CAL)
Ebay (EBAY)
Republic Services (RSG)
Watson Pharmaceuticals (WPI)
Biogen Idec (BIIB)
Penn National Gaming (PENN)
Cablevision (CVC)
US Airways (LCC)
Cardinal Health (CAH)
Monsanto (MON)
Pennymac Mortgage (PMT) ~ This is interesting because fellow hedge fund Blue Ridge Capital (Mignone's former fund) also has a position.
Las Vegas Sands (LVS)
Some Increased Positions
Positions they already owned but added shares to:
UnitedHealth (UNH): Increased position by 419.6%
Bally Technologies (BYI): Increased by 322.2%
Millipore (MIL): Increased by 158.7%
OSI Pharmaceuticals (OSIP): Increased by 100%
Hertz Global (HTZ): Increased by 77.7%
First America (FAF): Increased by 64.7%
Davita (DVA): Increased by 30%
Some Reduced Positions
Stakes they sold shares in but still own:
Schering Plough (SGP): Reduced position by 58.2%
Life Technologies (LIFE): Reduced by 32.3%
MGM Mirage (MGM): Reduced by 27.6%
Removed Positions
Positions they sold out of completely:
Zimmer Holdings (ZMH)
Sysco (SYY)
Staples (SPLS)
Bank of America (BAC)
Transocean (RIG)
Conoco Phillips (COP)
Cisco Systems (CSCO)
Plains Exploration (PXP)
Arch Coal (ACI)
Host Hotels (HST)
Liveperson (LPSN)
Waters (WAT)
Olin (OLN)
Tyson Foods (TSN)
Top 15 Holdings by percentage of assets reported on 13F filing
- Covidien (COV): 3.81%
- Millipore (MIL): 3.25%
- Expedia (EXPE): 3.04%
- Dr Pepper Snapple (DPS): 2.94%
- Ameriprise Financial (AMP): 2.59%
- Wyeth (WYE): 2.53%
- Berkshire Hathaway (BRK.A): 2.31%
- First America Corp (FAF): 2.16%
- Waste Connections (WCN): 2.05%
- Carmax (KMX): 1.99%
- Apple (AAPL): 1.99%
- Ritchie Bros Auction (RBA): 1.97%
- Exxon Mobil (XOM): 1.96%
- Avis Budget (CAR): 1.91%
- International Game Technology (IGT): 1.84%
Hedge fund Bridger Management was out adding a ton of brand new positions in the third quarter. After all, their assets invested in long US equities increased by almost $1 billion. Literally six of their top 15 holdings were brand new stakes including Berkshire Hathaway, Waste Connections, Carmax, Apple, Exxon Mobil, and International Game Technology. This fits directly with the theme we've seen of hedge funds being very long equities.
Bridger also added heavily to existing positions in UnitedHealth, Bally Technologies, and Millipore. We want to single out Millipore because Mignone's old firm, Blue Ridge Capital also has held a position in MIL for quite some time. It's interesting to see the portfolio overlap between Bridger and Blue Ridge, as well as other funds. Of all the Tiger Cub hedge funds, we'd venture to say that Bridger has one of the more individualistic portfolios in terms of top holdings. Don't get us wrong, they still share similar positions with other Tiger Cub hedge funds, but unlike those funds, Bridger does not hold them as top positions. Check out Blue Ridge's portfolio to see the similarities and differences. In terms of names Mignone's hedge fund sold completely out of, Zimmer Holdings, Sysco, Staples, and Bank of America no longer grace their portfolio and had previously been sizable positions.
Below you'll find graphical representations of the recent shifts in Bridger Management's portfolio courtesy of Drew Robertson at Financial Research Station:
(click to enlarge)
(click to enlarge)Overall, they increased stakes in services and technology. Assets from the collective holdings reported to the SEC via 13F filing were $2.1 billion this quarter compared to $1.15 billion last quarter, so they almost doubled their long US equity exposure on a quarter over quarter basis. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Also, please again note that these positions were as of September 30th so two months have elapsed and they've undoubtedly shifted around their portfolio since then.
This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, David Einhorn's Greenlight Capital, John Paulson's firm Paulson & Co, Lee Ainslie's Maverick Capital, Andreas Halvorsen's Viking Global, Chase Coleman's Tiger Global, Brett Barakett's Tremblant Capital, John Griffin's Blue Ridge Capital and Shumway Capital Partners (Chris Shumway), Thomas Steyer's Farallon Capital, David Stemerman's Conatus Capital, and Matt Iorio's White Elm Capital. Check back daily as we'll be covering new hedge fund portfolios.
Tuesday, January 5, 2010
Matt Iorio's Hedge Fund White Elm Capital: A Portfolio Glance
This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.
For the first time in our series we'll be tracking Matt Iorio's White Elm Capital. Previously, Iorio had spent six years at Stephen Mandel's Lone Pine Capital. Prior to that, Iorio graduated from the University of Virginia (McIntire School of Commerce) in 1993 and then went on to receive his MBA from Dartmouth's Tuck School of Business. After leaving Mandel's fund, he started his own hedge fund and we are tracking him due to his contributions to Lone Pine's success in the past. White Elm uses a long/short strategy with the goal of outperforming the market indices with less risk. They employ a fundamental, bottom-up investment process focused on company specific research, very similar to the process employed at Lone Pine (Stephen Mandel) and before that at Tiger Management (Julian Robertson).
Upon launching with $250 million last year, Iorio was said to be aiming for 'slow and steady' growth rather than ballooning his assets under management (AUM) as he targets fewer investors. And, there are many benefits to this approach as it has been well documented that smaller firms often outperform their larger counterparts. As funds grow and reach $1 billion and higher, their scope of potential investments often narrows since they have to put a lot of money to work. Smaller funds can be more nimble and can move in and out of whatever they please. Since White Elm is a newer fund, this is only their fourth 13F filing and we'll examine their portfolio holdings from the third quarter of 2009.
Below were their long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.
Some New Positions
Brand new positions that they initiated last quarter:
Fifth Third Bancorp (FITB)
Vistaprint (VPRT)
SBA Communications (SBAC)
Denbury Resources (DNR)
Umpqua Holdings (UMPQ)
Harley Davidson (HOG) Puts
Martin Marietta (MLM)
Longtop Financial (LFT)
Pitney Bowes (PBI) Puts
ETrade Financial (ETFC)
Dolby Laboratories (DLB)
Green Mountain Coffee Roasters (GMCR)
XL Capital (XL)
Some Increased Positions
Positions they already owned but added shares to:
American Public Education (APEI): Increased position by 570.5%
American Express (AXP): Increased by 349.2%
Atwood Oceanics (ATW): Increased by 87.2%
JPMorgan Chase (JPM): Increased by 66.4%
Apple (AAPL): Increased by 64.7%
Pinnacle Entertainment (PNK): Increased by 54.4%
Monsanto (MON): Increased by 39.5%
SEI Investments (SEIC): Increased by 24.1%
Some Reduced Positions
Stakes they sold shares in but still own:
Eastman Kodak (EK) Puts: Reduced position by 80.5%
Priceline (PCLN): Reduced by 70.7%
Google (GOOG): Reduced by 66.1%
Brink Home Security (CFL): Reduced by 41.7%
Collective Brands (PSS): Reduced by 30.1%
RenaissanceRe (RNR): Reduced by 25.3%
Visa (V): Reduced by 22.4%
Removed Positions
Positions they sold out of completely:
Qualcomm (QCOM)
Lorillard (LO)
MetroPCS (PCS)
Transocean (RIG)
State Street (STT)
Riskmetrics (RMG)
Progressive (PGR)
Principal Financial (PFG)
Top 15 Holdings by percentage of assets reported on 13F filing
- CNInsure (CISG): 8.13%
- Apple (AAPL): 7.18%
- Crown Castle (CCI): 5.98%
- JPMorgan Chase (JPM): 5.15%
- Solera Holdings (SLH): 5.12%
- Atwood Oceanics (ATW): 4.99%
- American Express (AXP): 4.81%
- Visa (V): 4.15%
- Collective Brands (PSS): 3.86%
- Mastercard (MA): 3.59%
- Fifth Third Bancorp (FITB): 3.55%
- Goldman Sachs (GS): 3.41%
- Transdigm (TDG): 3.21%
- Vistaprint (VPRT): 2.92%
- National Oilwell Varco (NOV): 2.66%
White Elm Capital started brand new positions in Fifth Third Bancorp and Vistaprint (VPRT). We want to single out their VPRT stake because Matt Iorio's former employer Lone Pine Capital also has a large Vistaprint stake. White Elm also added significantly to their existing positions in American Public Education and American Express. Like many other hedge funds, Apple (AAPL) is one of White Elm's largest holdings.
The cellular tower theme is prominent amongst Tiger Cub hedge funds and White Elm has selected Crown Castle (CCI) as their play. Many other funds own competitor American Tower (AMT) so it's interesting to see more funds owning CCI. Sticking with the 'positions owned by Tiger Cubs' theme, we also see that Iorio's hedge fund owns the payment processors of Mastercard and Visa as well.
Interestingly enough, we could also be getting a glimpse at some of their short positions as they have isolated put options on the following names: Harley Davidson, Garmin, Pitney Bowes, and Eastman Kodak. Since they don't own long stock in any of these names, they could be using put options as their proxy to short these companies.
Lastly, White Elm sold completely out of some previously large positions for them, including Qualcomm, Lorillard, and MetroPCS. Their sale of Qualcomm is notable since this company is one of the most popular stocks held by hedge funds.
Below you'll find graphical representations of the recent shifts in White Elm Capital's portfolio courtesy of Drew Robertson at Financial Research Station:
(click to enlarge)
(click to enlarge)This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, David Einhorn's Greenlight Capital, John Paulson's firm Paulson & Co, Lee Ainslie's Maverick Capital, Andreas Halvorsen's Viking Global, Chase Coleman's Tiger Global, Brett Barakett's Tremblant Capital, John Griffin's Blue Ridge Capital and Shumway Capital Partners (Chris Shumway), Thomas Steyer's Farallon Capital, and David Stemerman's Conatus Capital. Check back daily as we'll be covering new hedge fund portfolios.
Monday, January 4, 2010
David Stemerman's Conatus Capital Added To Tech Holdings, Bought Homebuilders
This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.
Next up in our series is David Stemerman's hedge fund Conatus Capital. This is only the fourth time we've covered their portfolio because this is literally only their fourth 13F filing. They are a newer fund, but their manager definitely has experience. Conatus raised $2.3 billion and began trading last year after David Stemerman left Stephen Mandel's Lone Pine Capital to start his own hedge fund.
Conatus is an interesting story to follow because Stemerman's old employer is a prominent 'Tiger Cub' hedge fund. Stephen Mandel was part of the group of Tiger Cubs that left Julian Robertson's successful Tiger Management to start their own hedge funds. Now Mandel has taken on the role of mentor and is seeing former employees going on to start their own funds. Things have come full circle and we're starting to see Tiger GrandCubs. In addition to David Stemerman, Matt Iorio also left Lone Pine to start his own firm, White Elm Capital, who we will track for the first time tomorrow. We find it appropriate to track these two gentlemen because they are well-versed in the successful bottom-up 'Tiger' stockpicking and have contributed to Lone Pine's solid track record over the years. You can check out our previous Conatus portfolio update here. Let's now move onto Conatus' portfolio from the third quarter of 2009.
Keep in mind that the positions listed below were Conatus' long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.
Some New Positions
Brand new positions that they initiated last quarter:
Wells Fargo (WFC)
Weatherford International (WFT)
DR Horton (DHI)
Toll Brothers (TOL)
Monsanto (MON)
Mindray Medical (MR)
Bed Bath & Beyond (BBBY)
Carnival (CCL)
Citrix (CTXS)
Baidu (BIDU)
Freeport McMoran (FCX)
BHP Billiton (BHP)
Some Increased Positions
Positions they already owned but added shares to:
Cisco Systems (CSCO): Increased position by 150.5%
Google (GOOG): Increased by 61.5%
Petrohawk (HK): Increased by 48.4%
SBA Communications (SBAC): Increased by 47.5%
Itau Unibanco (ITUB): Increased by 32.2%
Crown Castle (CCI): Increased by 30.6%
Apollo Group (APOL): Increased by 28.9%
Express Scripts (ESRX): Increased by 17%
Some Reduced Positions
Stakes they sold shares in but still own:
Priceline (PCLN): Reduced position by 42.8%
CTrip (CTRP): Reduced by 37.1%
Teradata (TDC): Reduced by 30.6%
Cognizant Tech (CTSH): Reduced by 25.1%
CH Robinson (CHRW): Reduced by 21.5%
Walter Energy (WLT): Reduced by 20.1%
Amazon (AMZN): Reduced by 14.2%
Removed Positions
Positions they sold out of completely:
Mastercard (MA)
Visa (V)
American Tower (AMT)
Discovery Communications (DISCA)
Southwestern Energy (SWN)
Top 15 Holdings by percentage of assets reported on 13F filing
- Apple (AAPL): 5.34%
- Apollo Group (APOL): 4.98%
- Range Resources (RRC): 4.84%
- Medco Health (MHS): 4.41%
- Cisco Systems (CSCO): 4.33%
- Express Scripts (ESRX): 4.32%
- Walter Energy (WLT): 3.7%
- Google (GOOG): 3.63%
- Wells Fargo (WFC): 3.63%
- Weatherford International (WFT): 3.53%
- JPMorgan Chase (JPM): 3.53%
- Itau Unibanco (ITUB): 3.27%
- Cognizant Tech (CTSH): 3.08%
- DR Horton (DHI): 3.05%
- Toll Brothers (TOL): 3.04%
In terms of positions they added to, they were fond of technology as they added heavily to their positions in Google and Cisco Systems. Stemerman's hedge fund also started brand new stakes in the home builders (Toll Brothers & DR Horton) which was worth noting given the tough times these companies have faced with the economy. Much like fellow hedge fund John Griffin's Blue Ridge Capital, Conatus also had Apple (AAPL) as their top long US equity holding. Coming in at their #2 holding was their stake in Apollo Group (APOL), another favorite amongst Tiger Cub hedge funds. Conatus' portfolio overall includes three stocks found on the list of most popular stocks amongst hedge funds.
Assets from the collective holdings reported to the SEC via 13F filing were $1.9 billion this quarter compared to $1.2 billion last quarter. So, like many other hedge funds, their long exposure to US equities increased substantially. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Also, please again note that these positions were as of September 30th so two months have elapsed and they've undoubtedly shifted around their portfolio since then.
This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, David Einhorn's Greenlight Capital, John Paulson's firm Paulson & Co, Lee Ainslie's Maverick Capital, Andreas Halvorsen's Viking Global, Chase Coleman's Tiger Global, Brett Barakett's Tremblant Capital, John Griffin's Blue Ridge Capital, Shumway Capital Partners (Chris Shumway) and Thomas Steyer's Farallon Capital. Check back daily as we'll be covering new hedge fund portfolios.
Analysts' Best Stock Picks For 2010
Raymond James' global research is out with a list of their analysts' best stock picks for 2010. Our previous post on this list was taken down due to the list not being distributed to the public yet. So, now that it is available publicly, here is their list. Their picks from this past year (2009) was up 52% compared to an S&P return over the same period of 30.1%, so they've outperformed by a wide margin. In fact, their annual list of stock picks has outperformed the S&P 500 in all year but one since 1996.
Their goal is to identify stocks that will produce "above-average price appreciation" over the course of the next year. They certainly did that with their 2009 list and so let's see if they can do it again with their impending 2010 selections.
Investment theme and stock pick lists for 2010 seem to be popular amongst the various financial institutions right now heading into the new year. Just yesterday, we covered the top ten investment themes for 2010 and how to play them. We've also detailed the top ten stocks held by hedge funds as well. Today we drill it down to specific stock picks for the new year courtesy of Raymond James. As always, take everything with a grain of salt as these reflect their own opinions. Without further ado, here's the list:
Analysts' Best Picks for 2010
- Aflac (AFL)
- Alpha Natural Resources (ANR)
- Altera Corporation (ALTR)
- Bank of America (BAC)
- Best Buy (BBY)
- Chevron (CVX)
- Concho Resources (CXO)
- CVS Caremark (CVS)
- FLIR Systems (FLIR)
- National Oilwell Varco (NOV)
- Nuance Communications (NUAN)
- Sybase (SY)
- TD Ameritrade (AMTD)
Let's dive into some specifics regarding each of their picks:
Aflac (AFL): Raymond James likes Aflac because they feel there is room for growth from supplemental health insurance products. Additionally, they fancy AFL's entrance into the group market. Overall, they feel they will see continued long-term demand. Finally, RJ writes, "Our price target of $60, established on October 29, assumes a normalized P/E on our 2010 EPS expectation of 11.7x less expected investment losses of $2.35 per share. The normalized P/E target is a 20% discount to the then current S&P 500 P/E of 15.6x based on a mean 2010 EPS estimate of $71.17."
Alpha Natural Resources (ANR): Their pick here is based on valuation as well as leverage to the metallurgical coal market, an area that is strengthening. They are also well diversified in other areas and have a solid balance sheet. RJ's main thesis here is valuation based as they write, "Our $52.00 target price factors in our target multiples on the various metrics including 15x P/E ratio, 7.5x P/CF, and 7x EBITDA, which fit within the historical trading ranges of ANR, along with a long-term DCF analysis. Note that this does not include any value for the ~330 Bcf of natural gas reserves, which we believe is easily worth another $5.00 per share, with upside over time through its Marcellus acreage."
Altera (ALTR): Raymond James has selected Altera due to their positioning to capitalize on programmable logic devices (PLDs). They think ALTR will outpace the semiconductor industry in growth by 2x over the course of the next few years. Their analysts write, "ALTR shares remain one of our favorite ideas with a 12-month price target of $29, based on a 23x target P/E multiple to our 2011 EPS estimate of $1.25. This multiple is a slight premium to the shares' 21x historic P/E average over the last three years, which we believe is conservative given Altera's solid business model and leadership in the industry."
Bank of America (BAC): Their tagline on this stock is simply "superior upside potential." As we have covered previously, numerous hedge funds agree as BAC is one of the most popular stocks amongst hedge funds. Analysts at Raymond James feel an oligopoly has emerged in US banking and BAC is right up there with the best in risk-based pricing as they write, "Trading at only 69% of book value and 131% of tangible book value compared to the recent industry averages of 114% and 164%, respectively, shares of BAC offer attractive risk/reward pricing and compare favorably to large-cap peers. Bank of America has already received approval to pay back its $45 billion in TARP funds and we believe a CEO announcement is imminent, both of which should receive a favorable response from the Street."
Best Buy (BBY): RJ's analytical team feels Best Buy can continue to capitalize on the demise of Circuit City as they will continue to gobble up market share, expanding returns. Improving operating margins and an increasing consumer base is boosting BBY's performance and they feel management is one of the best in consumer electronics. RJ writes, "Our $52 price target was reached by placing a ~15x multiple on our FY11 EPS estimate of $3.45, which represents a 16.7% discount to its historical three-year average of 18x."
Chevron (CVX): Chevron is the 'best positioned' among the integrated oil plays, RJ says. This is due to their above average oil focus, their drill-bit track record as they have the highest resource replacement rate, and lastly their small refining segment which should benefit them as they feel those with large exposure to refining will suffer going forward. Raymond James' analysts write, "Quite simply, we believe Chevron should be a core long-term holding for energy investors. Our $92.00 target price is based on ~11.6x our 2010 EPS estimate of $7.92, a slight discount to the mean 2000-2009 P/E. Inclusive of the current 3.5% dividend yield, our target price implies total return potential of 18%."
Concho Resources (CXO): Their pick here is mainly due to high returns in the Permian Basin as the vast majority of their revenues are tied to the price of oil. Of CXO, RJ's analysts say, "Concho generates some of the highest cash margins in our E&P group. One of the company’s core plays, the Yeso, generates an 80% internal rate of return at $70/Bbl oil. Concho is also one of the best in the entire E&P universe on production growth per debt-adjusted share (~35% vs. 3% for the peer group)."
CVS Caremark (CVS): This selection is based on the fact that CVS's model is not broken and that valuation is still attractive. They argue that the worst is behind this name and that going forward retail tailwinds will be behind them and they will see improvements in their Long's acquisition. Raymond James analysts argue that CVS now has compelling relative valuation and that you could potentially be getting their PBM essentially for free. They write, "With expectations reset, the potential for an improved 2011 selling season, and continued share gains in retail, we believe shares are poised to expand off of these trough valuation levels, especially if management continues to deploy significant levels of FCF to share repurchases. Our $39 price target represents 13x 2011 EPS of $2.95, toward the low end of historic ranges." Back on November 5th on our Twitter account we actually mentioned that Lee Ainslie (hedge fund manager of Maverick Capital) was supposedly very keen on shares of CVS at an investment conference that took place before the recent disappointment. We'll have to see if he still favors it going forward.
FLIR Systems (FLIR): Their bullishness on FLIR is attributed to rising orders and what they deem to be attractive valuation. FLIR is a pure play on thermal imaging and infrared technology, an area with lots of growth potential. They write, "As time progresses through next year and investors value FLIR on 2011 earnings, we believe the stock can reach the $40.00 range as its multiple expands toward the historical average. Our $35.00 target price is a 23x multiple on our 2010 EPS estimate of $1.50, in-line with the firm’s historical average multiple and in-line with peers."
National Oilwell Varco (NOV): This has previously been a hedge fund favorite and now Raymond James feel it will benefit throughout 2010. Their rationale: compelling valuation, free cash flow that is strong, and inorganic growth opportunities. They simply feel this is the best name in the oil service space by writing, "Our target price of $60.00 is based on ~18.5x our 2010 EPS. This valuation is in-line with its oilfield manufacturing peers and represents a more reasonable valuation for the company given its tremendous cash position, decent yield, and excellent growth prospects."
Nuance Communications (NUAN): Raymond James feels that speech recognition will be a forcible trend in technology and that Nuance is how you can play it. NUAN is already well positioned in a market that is just now entering the mainstream. Their analysts feel that, "Catalysts for the stock could include: gradual improvement in on-premise enterprise sales and resurgence in enterprise speech growth rates to 10+%, continued large on-demand wins within healthcare, potential benefits from the healthcare stimulus for Dragon Medical, continued new handset and auto wins for mobile, large hosted mobile care wins, and strong cash flow generation."
Sybase (SY): Their analytical team has decided that Sybase actually makes sense in any market environment. However, they have picked it for their 2010 list because it is a recession-resilient business and that they can capitalize on secular growth. RJ says, "Our $49 price target is based on a forward P/E multiple of 19x our 2010 EPS estimate of $2.58. We believe this is justified due to continued license growth, an improving operating margin, and the belief that we will continue to increase our EPS estimates."
TD Ameritrade (AMTD): Rounding out their list of selections, TD Ameritrade makes the cut due to possible catalysts, a solid balance sheet, as well as possible earnings growth should the Fed raise rates during the next year. RJ's analysts write, "TD Ameritrade remains at a discount to peer Charles Schwab (SCHW/$17.88/Outperform), which is currently trading at 21x our 2010 EPS estimate of $0.84 and 14x our 2011 EPS estimate of $1.29."
So there you have it. A few peculiar insertions but some logical ones as well. We'll have to see if their list can outperform the S&P500 yet again this coming year. We've also covered some other research out of Raymond James as we detail their chief investment strategist Jeff Saut's weekly market commentary. You can check out his stock market commentary from this week, as well as his previous market commentary where he feels a weak dollar will drive further market upside.
Comparing their list to the top stocks held by hedge funds, we see very little overlap. However, one stock where they both resoundingly agree is Bank of America (BAC). Tons of hedge funds hold this name and Raymond James has labeled it one of their top picks. For more favored stock picks for the year 2010, check out the top ten investment themes for 2010 as well as the most popular stocks among hedge funds.
Saturday, January 2, 2010
Market Folly Portfolio: December & 2009 Full Year Performance
Here are the 2009 results from our Market Folly custom portfolio created with Alphaclone. The portfolio invests in equities held by specific hedge funds as we seek to replicate their portfolios. The overall goal is to generate alpha and outperformance over the long-term by utilizing their stockpicking skills.
December 2009
MF: +4.0%
S&P 500: +1.9%
Full Year 2009
MF: +13.8%
S&P 500: +26.5%
Total Return (Since 2000)
MF: +885.5%
S&P 500: -8.2%
Annualized Return (Since 2000)
MF: +25.7%
S&P 500: -0.9%
Over the life of the portfolio, we've seen Alpha of 22.7, Beta of 0.2, and a 0.2 correlation to the Index. The 2009 performance was disappointing and as we've pointed out before, a 50% portfolio hedge severely drags on performance when the market rallies 60+% from the lows in one year. To demonstrate just how much the hedge hurt the portfolio, we'll pull up the long-only version of the portfolio: It returned 28.6% for 2009, outperforming the S&P by 2%. We created the portfolio with Alphaclone and highly recommend checking it out as you can replicate tons of hedge fund portfolios.
While the hedge put a damper on performance this year, it has also shielded from massive drawdowns in previous bear markets and has helped generate long-term outperformance. Keep in mind that you can run long-only versions or hedged versions, it's completely up to you. We just prefer to run a hedged book in order to protect from drawdowns.
Take advantage of the free 14-day trial to Alphaclone to see what stocks our original MF portfolio is currently invested in.
Friday, January 1, 2010
Happy New Year From Market Folly!
Just wanted to wish everyone a Happy New Year and a warm welcome to 2010. Hopefully this year will be just as exciting as 2009 and then some. To prepare for this time around in the markets, check out the top ten investment themes for 2010, hedge fund manager Doug Kass' predictions for 2010, as well as market strategist Jeff Saut's 2010 outlook.
Happy New Year and here's to a prosperous 2010!
What We're Reading ~ 01/01/10
Hedge fund clones draw investors [Wall Street Journal] ~ subscription required to view (get an 80% discount here)
Why Buffett is betting on the railroads [Railway Age]
A great collection of thoughts from financial bloggers: "In 2009 I learned that..." [The Reformed Broker]
Interview with Charles Kirk from The Kirk Report [Wall St. Cheat Sheet]
A further look at the General Growth Properties situation [Distressed Debt Investing]
The worst SEC filing footnote of 2009 [footnoted]
An interesting banking idea, a call to arms [MoveYourMoney]
Hedge fund legend Julian Robertson knighted in New Zealand [Marlborough Express]
