Sandler Capital's Top Stock Picks

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Harvey Sandler founded Sandler Capital Management in 1988 and his son came on board in 1991 after working as a research analyst at Perry Partners. Today, after working as an analyst in the hedge fund team until 1997, Andrew Sandler serves as portfolio manager for the company's flagship hedge fund and is the head of the hedge fund business of the firm.

Recently Sandler released its latest holdings in a 13F filing. In this article, we are going to discuss Sandler's most bullish bets and decide whether it makes sense for investors to imitate these stock picks.

Rockwell Automation Inc (NYSE: ROK): ROK is one of the large positions in Sandler’s portfolio. Over the fourth quarter last year, Sandler boosted its ROK stakes by 112%. At the end of 2011, Sandler had $46 million invested in this stock. A few other hedge fund managers were also bullish about ROK -- Jim Simons’ Renaissance Technologies reported owning over $7 million worth of ROK shares and Louis Navellier and Ken Fisher were also bullish.

We like ROK. The company saw strong revenue growth last year; its total revenue was up 25% for the fiscal year of 2011. Its net income was also up 50%. The growth may be slower in 2012, especially in European countries, but we are still very optimistic about the demand for automation products and services. We expect new automation systems to be built continuously in emerging markets, and the existing plants in countries like US will need to be modernized. ROK also has reasonable valuation multiples. It has a relatively low forward P/E ratio of 13.83 and its EPS is expected to grow at an average of 14.59% per year for the next five years. Therefore, its P/E ratio for 2014 is about 10. The main competitor of ROK, ABB Ltd (NYSE: ABB), looks attractive too. Its 2014 P/E ratio is only 9.3.

Clean Harbors Inc (NYSE: CLH): Sandler also largely increased its position in CLH over the fourth quarter. The fund increased its CLH stakes by 106% and had $39 million invested in this position at the end of last year. A few other hedge fund managers were also bullish about CLH, Ken Griffin’s Citadel Investment Group among them ($17 million at the end of September). Jim Simons, Richard Driehaus, and Louis Navellier were also in favor of CLH. The company has strong revenue growth and good cash flow from operations, but it appears a bit overvalued compared with its peers. The main competitor of CLH is Waste Management Inc (NYSE: WM). CLH’s forward P/E ratio is 26.11, versus 15.25 for WM. Although CLH has a higher expected growth rate of 13.75%, versus 9.67% for WM, we think the price premium for the growth is excessive. CLH’s P/E ratio for 2014 is 20, compared with 12.7 for WM. So we do not think this is the right time to purchase CLH.

Some other large positions in Sandler’s portfolio are Currency Shares Euro Trust Puts (FXE), SPDR S&P Midcap 400 ETF Trust (MDY), Vail Resorts Inc (MTN), and Dominos Pizza Inc (NYSE: DPZ). MTN’s forward P/E ratio is a bit high: 32.38, but it is expected to grow at over 40% over the next year. DPZ looks fairly priced. It has a forward P/E ratio of 17.26 and it is expected to grow at over 10%. Israel Englander was bullish about both MTN and DPZ. Millennium Management had $18 million invested in MTN and about $800,000 invested in DPZ at the end of the fourth quarter. We think DPZ is more attractive compared with its competitor Papa John’s International Inc (PZZA). Their forward P/E ratios are almost the same, but DPZ’s expected growth rate in recent years is higher than that of PZZA.


Motley Fool newsletter services recommend ABB and Waste Management. The Motley Fool owns shares of ABB, Clean Harbors, Domino's Pizza and Waste Management. Fool blogger Meena Krishnamsetty does not own shares in any of the companies mentioned in this article. 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.

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