Why Does this $3 Billion Hedge Fund Love these 5 Stocks?
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Chicago hedge fund manager Anand Parekh founded Alyeska Investment Group in 2008. Alyeska follows a market neutral strategy that takes both long and short positions. In 2011, the firm managed $2.5-$3.0 billion. Outlined below were Alyeska’s five largest holdings at the end of June, according to the firm’s 2Q 13F filing; of these five holdings three of them were new.
The hedge fund’s largest holding and newest position was Accenture (NYSE: ACN). Accenture is a global management-consulting firm that made up 34% of Alyeska’s 2Q. Even amidst an economic slowdown, Accenture has managed to gather several new and extended contracts, including with a Brazilian communications company, a European energy giant and several U.S. agencies. Next year’s earnings are expected to be modest at 8% given a weak economic outlook, particularly in Europe, where IT spending is being delayed. However, Accenture is expected to make improvements in operating margins—with 2012’s margin estimated to be 13.8% versus 2011’s margin of 13.6%—due to consulting services and the use of subcontract labor.
Alyeska also made new positions out of its second and third largest holdings, both of which were acquired by other companies shortly after the end of 2Q. The second largest position Progress Energy, and the third largest holding was Goodrich. In July, Progress and Duke Energy (NYSE: DUK) finalized their year-long merger talks. The transaction was stock-for-stock, and Progress will continue as a wholly owned subsidiary of Duke. The combined company will boast a strong balance sheet and continued non-regulated power segment earnings. Not to mention Duke pays a strong dividend yielding 4.8%.
United Technologies (NYSE: UTX) completed its $16.5 billion acquisition of Goodrich shortly into 3Q; the combined companies should be able to capitalize on an upswing in the commercial aircraft market, and make the most of long-term growth in commercial and residential construction in emerging markets. However, with the Goodrich deal complete, management lowered its 2012 sales guidance to $58-$59 billion from $61-$62 billion and its EPS forecast to $5.25-$5.35 from $5.30-$5.50.
The fourth largest holding was yet another new position: Solutia (UNKNOWN: SOA.DL). Solutia is a global manufacturer of performance materials and specialty chemicals. At the end of January, Eastman Chemical Company offered to acquire Solutia for $27.65 per share; this represents a premium of 42% and a total transaction value of approximately $4.7 billion. The company currently trades around $27.82.
The fifth largest holding was actually a company Alyeska reduced its 1Q stake by 19% in: Hubbell (NYSE: HUB-A). The electrical parts manufacturer now makes up only 1% of Alyeska’s portfolio. In Hubbell’s 2Q earnings the company saw sales of $778 million and earnings per diluted share of $1.29, as compared to net sales of $709 million and earnings per diluted share of $1.07 reported for the second quarter of 2011. A rebound in residential and non-residential construction should prove beneficial for the company given its exposure to these areas—this will help drive the expected 18% growth in EPS next year. However, there have been a number of insider sales within the company of late.
Overall, Alyeska is betting big on management consulting and a strengthening European company. The firm also had interesting bets on merger deals and even took a new position, in Solutia, where the trading value is already above the buyout offer—suggesting that perhaps with Solutia’s strong performance, Eastman may have to up its offer.
This article is written by Marshall Hargrave and edited by Jake Mann. 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 Accenture Ltd.. 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.