Tontine Asset Management’s Top Stock Picks
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Jeffrey Gendell’s Tontine Asset Management took large losses due to the financial crisis, but after shutting several funds the firm- which operates as an investor in stocks which are tied to attractive global macro trends- continues to manage capital and report many of its long equity positions in 13F filings. It recently released its applicable holdings as of the end of September, and while investors shouldn’t necessarily buy everything that Gendell or any other fund manager likes we think that these filings can serve as a source of ideas for further analysis. Read on for our quick take on some of Tontine’s top picks and compare them to previous filings.
The top pick in the fund’s portfolio is a play on housing: Patrick Industries (NASDAQ: PATK). The $200 million market cap company (it has $1-2 million in daily dollar volume) provides components such as countertops and cabinet doors for builders of homes and RVs. The stock is up an incredible 700% in the last year, and Tontine is taking some profits as it reported owning 4.2 million shares at the end of September compared to 4.7 million shares three months earlier. Revenue and earnings last quarter were each up about 45% from the third quarter of 2011.
Exide Technologies (NASDAQOTH: XIDEQ) was another smaller cap stock (market capitalization of about $220 million) with sufficient volume that we think investors wouldn’t have to worry about the liquidity of an investment. The fund cut its stake slightly here but still owned 6.3 million shares at the end of the second quarter. Exide provides lead-acid batteries to the auto industry and for industrial functions. It’s unprofitable on a trailing basis, and revenue has been down, so even with a forward P/E of 4 it might not be a good buy particularly compared to more stable auto parts and auto-related companies.
Chemicals company Innospec (NASDAQ: IOSP), whose business focuses on fuel additives, is another of Tontine’s favorite stocks. The P/E multiples look quite good- the company is valued at 10 times trailing earnings and 8 times analyst consensus for 2013- and in terms of enterprise value Innospec carries an EV/EBITDA multiple of 5.5x. It might be a value stock, though like many other chemical companies its revenue has been down slightly and we would want to examine the financials more closely before recommending an investment.
Gendell and his team liked Freeport-McMoRan Copper & Gold (NYSE: FCX) during the third quarter, increasing the holdings of the large basic materials company that is generally seen as a stand-in for global growth and Chinese growth in particular. Due to poorer pricing, the company had both its revenue and earnings come in considerably lower last quarter than a year ago. It does look fairly cheap at a trailing P/E of 13 and a dividend yield of 3.3%; while we’d generally be wary of the commodity price risk ourselves, we know that a number of investors are looking for just that and may find an equity more appealing than an ETF or futures trading (we looked at Freeport-McMoRan last month).
Tontine also took a more aggressive position in Citigroup (NYSE: C). The bank’s stock price is up this year, along with many other financials, but it still looks cheap compared to the book value of its equity with a P/B ratio of 0.6. Citigroup experienced steep drops in both top and bottom lines last quarter relative to what the company had done in Q3 2011, though Wall Street analysts expect that it will have a considerably better 2013. Specifically, their projections for next year’s earnings imply a forward P/E of 8. We might not be quite that optimistic, and think that there may be better opportunities in the banking industry. Read our analysis of Citigroup, including our view on what large banks might be more undervalued.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in Citigroup. The Motley Fool owns shares of Citigroup Inc and Freeport-McMoRan Copper & Gold. 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.