Billionaire James Dinan’s New Stock Picks
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Six to seven weeks after the end of a quarter, hedge funds and many other investors are required to file 13Fs with the SEC. These filings allow the broader financial community to see many of their long equity positions in U.S. stocks as of the end of the previous quarter. We have found that investment strategies can be derived from the information in 13Fs; for example, the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (read more about our small cap strategy). We can also examine individual 13Fs to see what billionaires and other top managers were doing in the fourth quarter, including what new stocks they were adding to their portfolio. Here are our thoughts on the five largest new holdings that billionaire James Dinan’s York Capital reported owning (or see the full list of stocks from the fund's 13F):
One of York’s largest holdings at the end of December was its close to 17 million shares of PetroLogistics (NYSE: PDH), up from none three months earlier. The $2.1 billion market cap company converts propane into propylene and then distributes the product to chemical companies. Petrologistics’ stock price is down about 10% from its levels shortly after its May 2012 IPO; in the short time it has been public it has been a good yield opportunity with a dividend yield of over 7% going by recent quarterly payments. Steadfast Capital Management, managed by Robert Pitts, owned 7.6 million shares of Petrologistics according to its own 13F.
Another new pick, also one of Dinan’s top picks, was Realogy Holdings (NYSE: RLGY), a $6.3 billion market cap property management company. Realogy franchises real estate brokerages, including Century 21 and Coldwell Banker. It is another recent IPO, having gone public last October, and is up 25% from those levels as investors look to an improving real estate market. Revenue has been up, per the company’s reports, though with a forward P/E of 30 the market is already assuming high growth. Billionaire John Paulson’s Paulson & Co. bought over 13 million shares in Q4 (find Paulson's favorite stocks).
York initiated a position of 1.1 million shares in Advance Auto Parts (NYSE: AAP). At a market capitalization of $5.7 billion, the auto parts store trades at 15 times trailing earnings. That’s generally a good level to start looking for value. While a number of other auto related companies are valued even cheaper, auto parts retailers are much more independent of the broader economy (for example, Advance has a beta of only 0.5). Business has been about flat compared to a year ago. Citadel Investment Group moved heavily into Advance last quarter; that fund is managed by billionaire Ken Griffin.
Canadian Pacific (NYSE: CP) was another new stock pick in Dinan’s portfolio. Billionaire Bill Ackman of Pershing Square had Canadian Pacific as his largest long stock position at the end of the fourth quarter; the activist has been trying to improve the railroad, and the stock price is actually up 58% in the last year. In terms of earnings it is a bit more speculative, as both the market and the sell-side are expecting improvements on the bottom line.
Dinan and his team bought 1.8 million shares of TW Telecom (NASDAQ: TWTC) between the beginning of October and the end of 2012, making the $3.8 billion market cap company (formerly known as Time Warner Telecom) its fifth largest new position. Renaissance Technologies, whose founder Jim Simons is now a billionaire, added shares of TW Telecom last quarter. With the stock’s earnings multiples being high, we wouldn’t consider it a good pick in value terms, though both sales and net income have been up compared to the same period a year ago.
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 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!