Billionaire James Dinan’s Latest Stock Picks

Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Six to seven weeks after the end of a fiscal quarter, hedge funds and other major investors are required to file 13Fs with the SEC. These filings disclose many of their long equity positions as of the end of the quarter (December in the case of current filings). We track this information in the course of developing investment strategies based on hedge fund activity; for example, on average the most popular stocks among hedge funds have outperformed the S&P 500 by 18 percentage points per year (read more about our small cap strategy). We also provide coverage of individual filings for investors who are interested in knowing how top managers have been trading the markets, even with a moderate delay.

James Dinan founded York Capital Management in 1991 and has since become a billionaire due to the fund’s strong performance, even as its assets under management have grown. We have gone through York’s 13F for the end of December and picked out some trends that might help illuminate what Dinan and his team were thinking last quarter. Read on for our analysis and review York's previous filings.

Realogy: One big buy in the fourth quarter of 2012 was Realogy Holdings (NYSE: RLGY), which York built up to a total of 5.3 million shares. Realogy is a $6.2 billion market cap real estate brokerage company which franchises Coldwell Banker and Century 21 (it does operate some of these franchises itself as well). This is clearly a bullish play on the housing market. The company went public in October 2012 and is up 33% from its levels shortly after its IPO. Analyst consensus is for it to earn $1.39 per share this year, implying a current-year P/E multiple of 32. Housing has been stronger over the last year (likely inspiring the IPO), and the market is assigning high multiples to other stocks tied to real estate and homebuilding.

Sprint: Dinan and his team were also buying shares of Sprint Nextel (NYSE: S), whose stock has risen 155% in the last year due to optimism about its competitive position and due to a plan to buy Clearwire Communications with help from Softbank. At this point Sprint is unprofitable, and sales have been up only slightly, but we have tracked other hedge funds buying in who are apparently convinced by these arguments. Billionaire John Paulson, for example, initiated a large position in Paulson & Co. during the fourth quarter of 2012 (see Paulson's stock picks).

Selling Yahoo: York trimmed its holdings of Yahoo! (NASDAQ: YHOO) from about 11 million shares at the beginning of October to 6.3 million at the beginning of this year. The Web portal trades at 17 times forward earnings estimates, and is up 41% in the last year due to the removal of its former CEO by an activist campaign led by billionaire Dan Loeb and his replacement with former Google employee Marissa Mayer. Yahoo may be in the process of selling off some of its assets, which could create shareholder value directly and also improve its concentration on the company’s core business.

Big bank, not small bank: York sold all of its shares of regional bank Regions Financial (NYSE: RF) while increasing its stake in Citigroup (NYSE: C) from about 430,000 shares at the end of September to 2.7 million shares at the beginning of 2013. Citigroup was the fourth most popular stock among hedge funds in the fourth quarter of 2012 (see hedge funds' five favorite stocks last quarter), and it trades at a discount to book value with a P/B ratio of 0.7 as many investors do not trust the quality of its assets. Regions actually carries a very similar discount to the book value of its equity, and forward earnings multiples for the two banks are in the 8-9 range (roughly even with at least the other large banks we have looked at).

We think that both Regions and Citigroup are cheap enough to be worth consideration as value stocks, regardless of Dinan’s moves. Yahoo and Sprint investments are likely dependent on the specifics of their respective deals, and it might be best to wait for more information in both cases. We aren’t very familiar with Realogy due to its short time as a public company, but with York interested it could be used as a housing play in substitute to homebuilders or other stocks that are tied to the weight of real estate transactions.


This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in C. The Motley Fool owns shares of Citigroup Inc . 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure