Billion Dollar Hedge Fund Bullish on Gas in 2013
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With that in mind, our detailed fund-by-fund analysis system sheds light onto the inner workings of hundreds of the world's most successful hedge funds, but let's take this time to discuss one that often flies under the mainstream media's radar: Jamie Zimmerman’s Litespeed Management. Zimmerman founded Litespeed in 2000, and one of its most impressive periods came when it returned 118% between October 2000 and December 2005 versus -13% for the S&P 500 index. With around $1 billion in assets under management, Litespeed is primarily an event-driven hedge fund focusing on special situations, distressed securities, and bankruptcies.
It has a decently sized equity portfolio of about $300 million; let's take a look at what Zimmerman's top five holdings were at the end of the fourth quarter. Though this information is reported with a delay, it's important to realize that this lag has actually helped piggyback investors beat the market by a greater margin in the past (more on that here).
Tronox (NYSE: TROX) was Zimmerman's No. 1 overall holding heading into 2013, and the titanium dioxide pigment maker has been in this spot since the third quarter of last year, when the position was originally established. Among the 450 top tier managers we track, Tronox saw its hedge fund interest decrease by 10% in Q4, though notable funds were upping their stakes. Along with Zimmerman's purchase of 25% more shares, Israel Englander and Chuck Royce were bullish as well. Jim Simons and Louis Bacon also established new positions during this three-month period.
Interestingly, Zimmerman's bet appears to have paid off, as shares of Tronox are already up 12.5% year-to-date, with about half of this appreciation coming in the past week. Much of Mr. Market's optimism may be due to speculation that the company's CEO recently said Tronox “has reasons to think about” snatching up assets from Rockwood Holdings. Equally as important, though, the company also beat the Street's revenue estimate by 4%, though it missed earnings numbers by 60%. There's much to focus on here, but ardent investors should pay attention to how the smart money is trading this stock moving forward.
Macquarie Infrastructure Company (NYSE: MIC) has been in Zimmerman's top five for five consecutive quarters, and the stock now sits at the highest place it has even been in her equity portfolio: No. 2. Macquarie was originally a new position for the fund manager in the third quarter of 2011, and it has been a marvelous investment since, popping by nearly 130%.
This is a very diversified infrastructure company giving investors a very bullish play in the gas segment; Wall Street expects an upside of at least 14% from current levels, and the sell-side as a whole forecasts long-term EPS growth to crack 10% a year through at least 2017. There are plenty of reasons for investors, and Zimmerman, to be bullish.
Avon Products (NYSE: AVP) and Diamond Foods (NASDAQ: DMND) sit at the No. 3 and 4 spots in the hedge fund manager's equity portfolio, and each stock has risen by double-digits in 2013—Avon by 36.1%% and Diamond Foods by 13.6%. Zimmerman was also upping her stake in both companies by an average of 16% in the fourth quarter, and the hedge fund industry's interest (of the funds we track) increased by an average of 4% in this duo.
Avon Products, the beauty product manufacturer and marketer, has seen the number of Wall Street analysts who hold "Buy" ratings on its stock jump by two-thirds over the past three months, and as a group, analysts' average price target represents an upside of 14% from current levels. Despite their recent appreciation, shares of Avon still trade at a 21% discount to sale value parity while paying a modest dividend yield of 1.2%. The same can also be said about Diamond Foods, which offers massive value at a mere 0.36 times sales, so there may be still room for piggybacks to mimic Zimmerman here.
Who's the best of the rest?
Last but certainly not least, Anadarko Petroleum (NYSE: APC) rounds out this top five. Anadarko, which was a new position for Zimmerman in the second quarter of 2012, is an intriguing play for her fund; it clearly looks bullish on a continued natural gas rebound. Along with her general sentiment—she's upped her stake in two consecutive quarters—shares of Anadarko have responded, rising by nearly 15% over the past six months. Fellow peers Rob Citrone, Ken Griffin and D. E. Shaw were also upping their positions last quarter, which is particularly good company for any investor to have.
This article is written by Jake Mann 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!