Billionaire Dubin's Newest Stock Picks
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Glenn Dubin co-founded Highbridge Capital Management with childhood friend Henry Swieca over twenty years ago, although Swieca has since left the firm. JP Morgan acquired Highbridge last decade but has kept Dubin on as CEO in a successful example of a financial institution buying a fund. We take a high interest in the firm’s holdings, as we have found that the most popular small-caps amongst hedge funds can lead to substantially high gains compared to market indexes (see the details here). We have examined Highbridge’s newest picks from last quarter, which you can read about below.
Receiving a $61mm investment from the firm, Broadcom Corp. (NASDAQ: BRCM) landed the top spot as Highbridge’s best new stock play. The semiconductor and chipmaker has created a history of beating earnings expectations, with the most recent release at the end of January delivering higher EPS and revenues that grew year over year. Rating agencies Cowen and Piper Jaffray have initiated coverage of BRCM since the announcement, giving the company Overweight and Outperform ratings, respectively. JP Morgan is slightly more reserved, downgrading BRCM to neutral in light of what the firm believes will be a slower adoption of smartphones going into next year. Billionaire Ken Griffin of Citadel Investment Group has built a position of nearly $5mm in BRCM (see his fund’s major positions here).
Transocean Ltd. (NYSE: RIG) comes in at the second spot on our list, with a $52mm commitment from the hedge fund. Although RIG saw a slight decline in popularity amongst the hedge funds that we cover, Wall Street analysts still have high hopes for the oil rig operator, giving the stock a one year mean price target north of $61, representing a potential 15% jump in price from current levels. Famed investor Carl Icahn has been lobbying RIG to pay a $4/share annual dividend and add three new members to its board, with RIG’s counter-response agreeing to a $2.24/share dividend, much to Icahn’s chagrin. An agreed upon amount has yet to be announced. Icahn currently holds about 5.8mm shares in his Icahn Capital fund (view his portfolio’s make-up here).
Eaton Corp. (NYSE: ETN) landed a spot in Dubin’s portfolio with a purchase of 950,000 shares. The diversified power management company has seen strong support from analysts this year, with positive comments from Credit Suisse and ISI Group. Investors who bought in a year ago would be up almost 27% now, all while collecting the high dividend yield of 2.7%. The company added to that dividend last month, pushing it from $0.38 to $0.42. Eaton announced the completion of its Cooper Industries acquisition late last year, with the stock gaining 19% since then. Billionaire Mario Gabelli of GAMCO Investors pushed up his ownership to 750,000 shares in Q4 2012.
Ctrip.Com International, Ltd. (NASDAQ: CTRP) was the fund’s fourth largest new position. The China-based company serves the demand for travel in China by providing resources such as guided tours, hotel accommodations, and airline ticketing. CTRP is a favorite amongst analysts from firms like Goldman Sachs, Raymond James, and most recently, Brean Capital. These positive ratings could largely be in part due to earnings beat after earnings beat from Ctrip.com, including the most recent surprise of $0.10 at the end of January. The company has high hopes for Q1 as guided during its announcement, expecting 15%-20% revenue growth versus the same quarter last year. Billionaire Andreas Halvorsen of Viking Global owns about $38mm worth of CTRP.
Petroleo Brasileiro S.A. Petrobras (NYSE: PBR) made its way into Highbridge’s top five new picks by taking up $50mm of the fund’s AUM. With a market cap of $111bn, PBR was far and away the largest company on our list to be added; it also gave the worst performance, losing 37% in the past twelve months. Wall Street has modeled much higher valuations for the stock than what it is currently trading at; on March 7th, Credit Suisse upgraded PBR to outperform and planted a $25 price target on its report, which could mean a near-50% gain from today’s levels. A recent increase in diesel prices is the fire fueling that growth. Ken Fisher of Fisher Asset Management reduced his position from Q3 2012 to Q4 but still carries a staggering 12.7mm shares.
Out of these five stocks our favorite picks are Broadcom and Transocean. Interestingly, hedge fund managers are most bullish about these two stocks in this group. We especially like Icahn's involvement in Transocean. His activist campaigns aren't always successful but his investments have been doing very well over the past few years. We think Petrobras is a risky investment and we would stay away from that stock.
This article is written by Eric Winter and edited by Meena Krishnamsetty. InsiderMonkey has no position in any stocks mentioned. The Motley Fool recommends Ctrip.com International and Petroleo Brasileiro S.A. (ADR). The Motley Fool owns shares of Ctrip.com International and Transocean. 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!