5 New Positions From Farallon Capital Management

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Andrew J. M. Spokes became the sole managing partner of Farallon Capital Management at the end of last year, when Thomas Steyer stepped down after twenty-seven years at the firm. Despite his retirement, the hedge fund founder left a large bulk of his capital under Spoke’s management. Farallon filed its 13F with the SEC this month, indicating which positions the firm took in Q4 of 2012. Although there is a lag between actual entry times and the distribution of 13Fs, one can still get an idea of Farallon’s market position by analyzing the document. We have sifted through many billionaire hedge fund managers’ filings to come up with a market-beating basket of small-caps (learn more here). Here is our take on Farallon’s new positions as indicated by the filing:  

Dollar General (NYSE: DG) made a big splash into Farallon’s portfolio as a top position with a $190 million investment. DG has seen margins increase substantially since 2008, when the recession took hold and unemployment rose. Stagnant wages have kept a number of shoppers turning to the discount category (which includes other retailers like Family Dollar and Dollar Tree). If the economy improves, these low-cost stores will likely experience a flight of customers. Analysts still remain largely bullish on DG, with fifteen out of twenty-three estimates recommending a buy. Billionaire David Harding owns over 110,000 shares.

EMC Corporation (NYSE: EMC) takes up 3% of Farallon’s $4.3 billion in assets and was the second largest addition to the fund’s portfolio. The IT infrastructure player and 80% owner of VMware recently posted fourth-quarter earnings last month, issuing a beat and showing increases in revenue, product sales, and services versus the same quarter a year prior. The company also expects a share repurchase amounting to $1 billion for 2013. Wall Street has high hopes for this stock, coming together to create a one year price target that is 26% higher than current levels. David Costen Haley of HBK Investments has a debt investment in EMC worth nearly $400 million.

Disney (NYSE: DIS) was another large addition with over $110 million committed by Farallon’s investment team. In December, Disney announced a deal with Netflix that would enable only Netflix subscribers to view Disney content (i.e. Marvel, Pixar, Walt Disney Animation) from 2016 onward. The agreement would also give Netflix Pay-TV rights over new Dreamworks releases, starting in 2013. DIS recently posted Q1 fiscal 2013 earnings at the start of the month that beat analyst expectations slightly and revealed total revenue growth of 5% year over year. Billionaire Ken Fisher holds more than 8 million shares of the company.

International cosmetic and beauty supply retailer Sally Beauty Holdings(NYSE: SBH) is next on our list, receiving 2.58% of Farallon’s assets under management. SBH has high hopes for expansion in the future; the company is aiming to grow its 2,650 domestic store count to roughly 3,000 at an annual rate of 4%-5%. Internationally, the company has a presence in Canada, Europe, Mexico, and Chile; SBH would like to see those 671 stores become part of an additional 1,500 over the next five years. The stock posted a gain of 17% looking a year back, edging out the S&P 500 by seven percentage points. Billionaire Jim Simons has almost $80 million invested in Sally Beauty Holdings.

Farallon also took a bearish view on gold with a put position in the SPDR Gold Shares (NYSEMKT: GLD). GLD has lost $3.1 billion in outflows so far this year, with redemptions accelerating this month. The Gold ETF has declined slightly less than 6% in the same time period. Encouraging economic trends are the main reason for the mass departure by investors, and higher and riskier yields in other asset classes have attracted that money. Credit Suisse recently downgraded gold, adjusting its price target from $1,750 down to $1,600. Steven Cohen of SAC Capital Advisors bought some puts as well last quarter (view his portfolio here).


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 recommends Walt Disney. The Motley Fool owns shares of EMC and Walt Disney. 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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