Newest Plays for Billion Dollar Bridger Management
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Most hedge fund managers can only dream of breaking the “billion-dollar ceiling” of the big leagues, and they remain content with a critical mass of nine-figures or less. Roberto Mignone of Bridger Management not only surpassed the billion dollar mark, but he has avoided growing larger mostly due to his belief that performance suffers in long/short equity funds that take on too many assets. With that in mind, he shoots for the best return on his $1.4 billion in assets under management and even charges just 1.5% in management fees, whereas the typical hedge fund structure dictates a 2% fee. Now in its thirteenth year, Bridger Management is continually seeking value and has released its newest positions in its last 13F, filed in September of 2012. The following is our take on Mignone’s latest allocations.
The largest of Bridger Management’s newest positions was in global gaming supplier SHFL Entertainment (NASDAQ: SHFL). Mignone focused 3% of his portfolio into the stock, which has a small market capitalization of $800 million. The company primarily manufactures gambling equipment (traditional and digital) such as slot machines and e-tables. Despite their small size, SHFL has continually posted positive earnings, and they clocked in 11% growth in revenue and earnings for their last reported quarter versus the same quarter in 2011. We expect earnings to grow in 2013, evidenced by their decrease from trailing P/E to projected P/E. Mignone’s analysts clearly see value in this play (Read more encouraging analysis on SHFL here).
The second stock they added was Eli Lilly & Co. (NYSE: LLY), a significant player in the trillion dollar pharmaceuticals industry. Bridger may be betting on a continued rise in stock price due to Eli’s latest approvals by U.S. and European agencies for Amyvid, their latest protein scanning agent. However, analysts are expecting hiccups for LLY in 2013, as patent expiration and increased production of generics could hurt sales of the company’s brand names. Despite similar events occurring in 2012, their yearly performance was impressive, racking up a 37% gain in share price in the trailing twelve months. We side with the sell-side analysts in LLY’s case, encouraging a hold if already in the position, as a reduction in revenues could easily bring the stock down.
Rent-A-Center (NASDAQ: RCII) was another play by the hedge fund, and we like the stock for many reasons that Bridger may be privy to as well. Last month, the rent-to-own operator boosted its dividend for the eleventh successive time, bringing its dividend yield to a respectable 2.4%. Earnings beats were typical in 2012, and their relatively low PEG ratio of 1.1 signals further growth in the future. Couple this with an impressive 28% growth in earnings last quarter versus the year prior and RCII could be a success story in the following year. If overall economic growth gets bleak or recedes, expect RCII’s stock to rise as more consumers may be apt to rent versus own.
Healthcare service provider Centene Corporation (NYSE: CNC) snatched up 1.21% of Bridger’s assets, and the fund has seen a modest performance during their small ownership, despite a dip in share price in mid-October of 2012. The stock posted a negative gain in the prior 52-weeks and was hit with a downgrade by investment bank Jeffries in late December. Earnings dipped into negative territory last year but have recovered since then, and estimates for their next reported announcement (due out the fifth of February) are in line with the previous quarter at $0.33. While we recognize the upside, CNC might be too volatile with their checkered earnings past to be a significant play in our eyes (see which billion-dollar fund manager cut his position down by 60%).
Endologix (NASDAQ: ELGX) was another healthcare play by Mignone, with this company’s focus being in the production of medical devices to alleviate heart disorders. Placing much more emphasis on future potential than past performance, sell-side analysts have ignored a full year of negative earnings in 2012 (as well as negative estimated earnings for the coming quarter, still to be reported). In spite of this, bullish sentiments prevail, with significant upgrades and buy recommendations flowing in since the middle of last year. Future growth ratios are skewed to the negative, but ELGX is expected to gain almost 13% from present prices if they reach our price expectations a year out.
This article is written by Eric Winter and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no position in any of the stocks mentioned. 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!