Billionaire Howard Marks’ New Stock Picks

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Oaktree Capital Management, which was founded by Howard Marks in 1995, is an investor in both debt and equity securities. In mid-November, Oaktree filed its 13F for the third quarter of 2012, disclosing many of its long equity positions. We went through the filing and compared it to the fund’s disclosure for the second quarter to identify which stocks Oaktree had added to its portfolio during the third quarter. Read on for our quick take on Oaktree’s five largest new stock positions reported on the 13F and see more stock picks from Howard Marks.

One new pick- and the fund’s second largest 13F holding overall by market value- was 14.1 million shares of Delphi Automotive (NYSE: DLPH). Delphi is an auto parts company whose products include components related to the electrical, electronic, and powertrain systems. With auto demand low, it trades at only 9 times trailing earnings despite the fact that the company’s business was actually about flat last quarter compared to the third quarter of 2011. Fellow billionaire John Paulson’s Paulson & Co. cut its stake in the company by 22% during the third quarter, but still owned over 25 million shares at the end of September (find more of Paulson's stock picks). We think that the stock looks like a good value, though there may be even better deals at other auto related companies.

The fund initiated a position of about 780,000 shares in United Technologies (NYSE: UTX), a technology products and services company which produces Otis elevators and Pratt & Whitney aircraft engines. At a market capitalization of $73 billion, it trades at trailing and forward P/E multiples of 16 and 13 respectively. That implies that investors are expecting modest growth, and that is essentially what the company has done in its most recent results. Third Point, an activist and value fund managed by billionaire Dan Loeb, reported a position of 1.6 million shares in the company on its own 13F (check out Dan Loeb's favorite stocks). We think the stock looks priced about right- not too cheap, not too expensive.

Caesars Entertainment (NASDAQ: CZR) was another new stock with Oaktree owning 2.5 million shares. The casino owner and operator is seeing considerable net losses this year, with the red ink expected to extend to 2013 as well. It is down 56% from its IPO in the beginning of February, and has a very high debt load. The most recent data shows that 17% of the outstanding shares are held short, and we don’t think that the company is a buy- in fact, if the business does not improve it may make a good short against other casino stocks.

Oaktree also bought shares of alternative investment manager Apollo Global Management (NYSE: APO). Apollo Global trades at a discount to the book value of its equity, with a P/B ratio of 0.8. However, many of its investments are of course privately held and it is another heavily indebted company. The trailing P/E is 16, but Wall Street analysts expect the company to do considerably better next year and so the forward P/E is 5. We might consider comparing it to other alternative investors such as Blackstone.

The fund also added $9.9 billion market cap Brazilian electric utility Companhia Energetica Minas Gerais (NYSE: CIG) to its portfolio by buying about 430,000 shares. As might be expected for a utility, Cia Energetica’s dividend yield is fairly high (though it does tend to fluctuate, likely due to foreign exchange rates). As might be expected for a utility in a developing country, it is growing nicely with revenue 19% higher in the third quarter than in the same period in 2011 and net income rising at an even faster rate. The P/E multiples are very low as well. There’s certainly quite a bit of risk related to buying a foreign utility, but Cia Energetica might provide a good mix of value and growth.


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. 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!

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