The Latest Purchases by David Dreman's $3.5 Billion Fund
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Billion-dollar fund manager David Dreman has been investing institutional money on Wall Street since 1977 within his fund, Dreman Value Management. The investment firm, which heavily favors financial stocks, recently released its Q4 13F filing with the SEC, detailing which positions it held going into the end of last year. We keep a close eye on how the Street’s giants invest their money, as we’ve found a number of retail-friendly strategies can be gleaned from them, including a proprietary small-cap strategy that has returned over 29% since it was launched last September (find out more here). We’ve dug into Dreman’s latest public disclosure and have analyzed his largest purchases made in Q4 2012.
First Niagara Financial Group. Inc. (NASDAQ: FNFG) was Dreman’s largest new initiation, receiving an allotment of $24 million from the firm. True to his portfolio’s strong tilt towards financials, the retail and commercial banking company takes up 0.70% of the fund’s assets under management. Goldman Sachs initiated coverage on FNFG last December, sticking it with a Neutral rating. Despite a 10% price depreciation stretching back a year, growth could be in FNFG’s future with its purchase of 195 banks from HSBC last year. The $4.15 dividend yield should help to tide investors over in the meantime. Billionaire Ken Griffin of Citadel Investment Group has a share count that nearly tops 5 million.
Berry Petroleum Company (NYSE: BRY) received a $17 million investment by Dreman Value Management. Continuing the trend that is prevalent through most of this list, BRY also had a negative performance in the past twelve months, losing 8% versus the market’s gain of 13%. However, the independent energy company is up 40% year-to-date after last month’s announcement of being acquired by Linn Energy for $2.5 billion. BRY’s consistent earnings misses did not deter Linn, who is after Berry’s "long lived, shallow decline assets." Israel Englander of Millennium Management might be a tad more satisfied now with the $8 million purchase in BRY he made last quarter.
Mentor Graphics Corp. (NASDAQ: MENT) received an investment of $16 million by Dreman in the fourth quarter. Unlike the rest of the stocks on our list, Mentor’s price per share went up since this time last year, even slightly beating the market’s return. The company supplies electronic design automation tools, and has performed well relative to analysts’ expectations each earnings season; this includes a string of double-digit beats in 2012. MENT recently initiated a modest dividend of $0.045/share, resulting in an annual yield slightly north of 1%. The stock is almost 20% away from where Wall Street expects it to be a year from now. Billionaire Carl Icahn of Icahn Capital LP has an incredible $274 million invested in the company (read about his top picks here).
Itron, Inc. (NASDAQ: ITRI) saw a slight bump in popularity amongst hedge funds going into the end of last year. Of the 400+ funds we track, 15 owned the stock in Q4 2012 versus 12 in Q3. The $1.7 billion company develops technology for water, electric, and gas metering applications and keeps global operations. Dreman allocated $14 million to the company, joining billionaire Glenn Russell Dubin of Highbridge Capital Management, who also initiated a position in ITRI last quarter. Boosting shareholder value, Itron announced earlier this month that it will launch a $50 million stock buyback program that could potentially repurchase almost 3% of outstanding shares.
Kulicke and Soffa Industries, Inc. (NASDAQ: KLIC) received a $7.6 million capital commitment from the hedge fund and was the smallest company that made it onto our list; its market cap is measured in millions, not billions ($829 million to be exact). The company makes tools and equipment used in the manufacturer of semiconductor devices. Despite KLIC’s small size, its balance sheet is a financier’s dream, with almost $500 million in cash and zero debt. That cash stockpile might lead to a possible buyback or dividend redistribution for stockholders in the future, but no concrete announcement has been made yet. D. E. Shaw reduced its position by half going from Q3 2012 to Q4.
Investors usually pay attention to mega-cap stocks picked by superstar fund managers, but the real value is in their small-cap picks. Kulicke and Soffa Industries is the most popular stock in this group despite being the smallest. This is highly unusual. The stock's enterprise value is $330 million and its earnings were $156 million over the last twelve months. The stock is trading at 2 times its trailing earnings. Any serious investor should research this stock in detail. There is limited downside and if one of those hedge funds decide to go activist on this stock, it may skyrocket in the blink of an eye.
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 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!