Small Hedge Fund’s Big Stock Picks
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Akanthos Capital Management is a capital structure long/short hedge fund. Michael Kao, who founded Akanthos in 2002, previously managed an arbitrage group at Canyon Capital Advisors and has degrees from Berkeley and Wharton. Akanthos is a fairly small fund, which partially explains its early 13F filing (13Fs are not due until mid-August). Akanthos Capital Management doesn’t recommend or endorse any of the stocks or analysis in this article, and we have no relationship with the fund, but based on SEC filings these are our opinions of what they are thinking. Read on to see the fund’s largest reported positions or compare them to previous positions at Akanthos Capital.
The fund’s largest holding at the end of the first quarter was General Motors (NYSE: GM). A number of hedge funds liked GM this year- it made our list of the ten most popular stocks among hedge funds in the first quarter- but have been disappointed as GM is down over 5% this year and over 20% since the end of the first quarter when these funds reported their positions. At the end of June, Akanthos owned about 550,000 shares of GM, but this was down from the 2.1 million shares in the fund’s portfolio at the beginning of the second quarter.
Wynn Resorts (NASDAQ: WYNN) draws in money from its casino hotels, including two resorts in Las Vegas. Wynn Resorts has a beta of about 2, indicating that Akanthos is not particularly worried about a general decline in broader market indices or thinks that at a trailing P/E of 19 Wynn is such a good value that its stock price will resist poor macro conditions this time around. Akanthos’s 50,000 share position in Wynn is new this quarter. Tiger Cub Andreas Halvorsen of Viking Global had initiated a large position in Wynn in the first quarter of 2012.
Allegheny Technologies (NYSE: ATI) is a $3.2 billion market cap producer of specialty metals such as nickel- and titanium-based alloys. Its stock has fallen 44% over the last year but sell-side analysts give it very good earnings projections; the 5-year PEG ratio is 0.4. Even looking at 2013 earnings gives a forward P/E multiple of 9, meaning the stock is cheap if it can hit those numbers. This is another new position for Akanthos as it bought about 80,000 shares in the second quarter. Investors should also note that, as an industrial stock, Allegheny has quite a bit of market exposure as well.
Large gold miner Goldcorp (NYSE: GG) carries a $29 billion market cap, though the stock is down 22% so far in 2012 as the company’s last quarterly report had earnings down over 40% compared to a year ago. Sell-siders say that business will come back and the company has a forward P/E of 13. Akanthos has sliced its position to just under 50,000 shares compared to about 140,000 shares at the end of the first quarter. Goldcorp has a low beta, but obviously its profits depend on the price of gold in the commodity markets. First Eagle Investment Management was a major holder of the stock.
Akenthos apparently likes the tourism industry right now; its second largest position, as mentioned, was a casino and its fifth largest position was Starwood Hotels and Resorts (NYSE: HOT), which operates upscale hotels and vacation ownership resorts worldwide. The fund had owned 100,000 shares at the end of March and, while this position has been trimmed slightly to 80,000 shares, it is still a significant holding. Starwood is another stock that is sensitive to market conditions with a beta of about 2, but it has beaten earnings per share estimates by over 10% for three quarters in a row and trades at a trailing P/E of 18.
Akanthos has cut a number of its positions, but the fund’s portfolio is still fairly risk-oriented with some high-beta positions or commodity-dependent stocks in its top holdings. We also see an emphasis on near-term value plays, particularly with GM and Allegheny. We wouldn’t recommend any of these stocks with the possible exception of GM, which is trading at very low multiples and should be compared to other auto stocks.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article.The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend General Motors Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.