Three Big Buys by Kyle Bass in the Fourth Quarter
Aubrey is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Kyle Bass is known for successfully playing the right cards in the sub-prime market crisis in 2007, which gave his fund an enormous return of 216% in that year. Since then, he has become a notable figure closely observed by many investors. His expertise is on examining debt levels; his hedge fund has in fact turned into a “debt analysis think-tank.” His theses on Japan and several Euro-zone economies were said to be rooted from the skills he acquired through a decade-long career on Wall Street. Thus, even with a reported dip of his Japan Macro Fund last year, Kyle Bass’ positions are worth a good look as these can point to a mix of stocks that one can consider.
Mr. Bass’ Hayman Capital Management had a total of $160 million assets under management as of the end of December 2012. It had sold 3 stocks out and bought 10 new ones. The biggest buys were Huntsman Corporation (NYSE: HUN), Nationstar Mortgage Holdings Inc. (NYSE: NSM), and Tempur Pedic International Inc. (NYSE: TPX). Although this article does not show the actual performance of the stocks when Hayman made the purchase, because we do not know for sure when that happened, we can still get an idea by analyzing its current performance. By looking at how the stock has done so far since the quarter of purchase, it provides a strong basis for whether the fund manager had picked the right stock or not.
Hayman Capital had just put chemicals-maker Huntsman on top of its portfolio with a new position of over 1.380 million shares, representing 13.68% of its total portfolio. Despite the recent negative growth in its revenues, Huntsman has either met or exceeded consensus estimates in terms of earnings in all quarters of 2012; the company boasts an ROE of 20.55%. Indicators of its valuation can easily lure investors. Its P/E ratio is 11.07, while its forward P/E is only 7.08. On the other hand, its high debt-equity ratio, at 1.955, can become a concern if the revenue continues to plummet. On a positive note, however, the quarterly debt-equity ratio is on a declining trend. Meanwhile, Huntsman maintains a good record of paying stable dividend income; it recently increased the quarterly amount from $0.10 to $0.125 per share in the first quarter of 2013. The company had just moved up in market cap rank, with $4.04 billion, passing Patterson Companies, which has a current market cap of $4.02 billion.
Nationstar Mortgage Holdings
The asset management firm initiated a position in Nationstar Mortgage worth over $21.293 million, which is equivalent to 13.26% of its portfolio. The company exhibits high profitability with its net margin (ttm) of 20.63% and ROE of 32.72%. The current margin is way above the historical rate of below 10%. In fact, the company has consistently performed a positive earnings surprise in the last 3 consecutive quarters. Furthermore, NSM has a P/E ratio of 19.76 and a forward ratio of only 9.45. Meanwhile, quarterly revenue has expanded enormously by 204.83% year-over-year. In terms of debt, the company heavily relies on borrowings, with its debt-equity ratio of 5.35. But I must say that Mr. Bass had correctly picked NSM based on the fact that the stock price has been slowly moving above the $35 mark since the year started.
Tempur Pedic International
Hayman bought 660,000 shares of Tempur Pedic; this third stake comprised 12.95% of the firm's portfolio. The beddings manufacturer has been surpassing earnings expectations in all the quarters of 2012. Based on its debt-equity ratio (mrq) of 45.96, the beddings manufacturer is heavily indebted. However, its quick ratio and current ratio should be able to tell you that it can easily extinguish its current liabilities if it so wishes. Currently, the company is slowly creating momentum in its stock price. Compared to that of the latest quarter, the price is now higher, above the $35 mark. However, Mr. Bass seemed to have been too excited about TPX, gambling 12.95% of the assets under his command, especially with a lower than historical profit margin and declining quarterly revenue. Since March of 2010 up to March 2012, TPX boasted a double-digit revenue growth. This has turned into a negative figure in the last 3 consecutive quarters.
Hayman’s big buys have been doing fine so far in terms of stock gains since the latest quarter. Also, the fact that all three top stocks have had positive earnings surprises justifies the firm’s decision to initiate its position. But putting them on the top of the portfolio is another thing. Even with some positive gains in these stocks’ performances, I’m sure there are other companies I can find that are far more exciting than these three.
aubrey1102 has no position in any stocks mentioned. The Motley Fool owns shares of Tempur-Pedic International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!