This Wall Street Superstar is Going Against The Herd
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Eton Park Capital’s fund manager, Eric Mindich, is truly unique, in that his ability to generate piles of cash for Goldman Sachs was rewarded with an appointment to become the youngest partner (27) at Wall Street’s most elite investment bank. Knowing how difficult the process of becoming a partner at Sachs is, this is no small feat. With that said, we are going to take a look at the new positions acquired by Mindich, and in the process, we’ll see if this Wall Street savant’s stock picking ability is as remarkable as his arbitrage skills.
Mindich bought 4.5 million shares of discount retailer Dollar Tree (NASDAQ: DLTR) during the fourth quarter of 2012 according to his latest 13F filing. Dollar Tree has been growing rapidly after the recession drew consumers to low-cost retailers. The company’s closest competitor is Dollar General, which Mindich already owns 6.5 million shares of. In our opinion, adding Dollar Tree was a bit redundant, since the two stocks trade almost identically, have nearly indistinguishable financials, and compete for the same market. Dollar General is the better value and has a more attractive price-to-sales ratio of 1.0x, versus 1.5x for Dollar Tree. Of course, ardent investors shouldn't rule out Wal-Mart’s participation in the discount multi-line retail sector. The mega-retailer plans to start rolling out smaller stores to compete with the convenience of dollar stores such as Dollar General, Dollar Tree and Family Dollar.
Eton Capital added 23.1 million shares of Sprint Nextel (NYSE: S) to its equity portfolio, making it the fifth largest holder of Sprint of the hedge funds followed by Insider Monkey. After trading sideways at $5.60-$5.80 for most of the start of the year, Sprint is finally breaking out of that range with a $6.03 price at the time of this writing. A pending deal with Japan’s Softbank will provide Sprint with much-needed cash, especially in light of a particularly heavy debt load. Still, there aren’t very many other compelling reasons to hold the stock other than the bullish technicals, which suggest a new range of $6.00-$6.10. The stock appears overvalued, sales devoted to cost of goods sold is increasing, and revenue growth has been anemic over the past three years.
Mindich’s new 175,000-share position in Priceline.com (NASDAQ: PCLN) appears to be paying off handsomely. The online travel booking service has appreciated in price by 17% from a fourth quarter 2012 low, which roughly translates into an $18 million profit for Eton Park. The growth potential for Priceline is there; especially compared to rivals Expedia and Orbitz. Priceline has positioned itself more strategically in the European and Asian markets, in particular. There was some heavy profit taking at the $727 high earlier this month on the heels of a delay in the company’s Kayak acquisition (UK regulators are reviewing any anti-trust implications), but most of that appears to have been technically driven following a bearish reversal in the stochastics.
Eton Park’s 350,000 shares of Chipotle Mexican Grill (NYSE: CMG) is the largest position in the fast-casual restaurant operator of the funds we track. Chipotle distinguishes itself from other Mexican-themed chains by using only organic products, whereas competitor Taco Bell—owned by Yum Brands—makes no such claim and therefore, has no such restrictions on supply. Although fourth quarter 2012 earnings were a bit of a disappointment, the company is still more competitive than most other options in this space. As one would expect, Chipotle is attempting to brand itself as the organic-friendly, and trendier of the two, by offering an organic clothing line that includes hoodies, tee shirts and tote bags. This tactic is expected to get younger consumers to identify with Chipotle’s efforts to establish a “lifestyle brand,” which is a phrase every long-term investor loves. Check out which other hedge funds are bullish on Chipotle.
Finally, we have Moody’s (NYSE: MCO). The ratings agency went into a tailspin on February 1st, losing 22% in just one week in sympathy with S&P’s parent company McGraw-Hill, after the Department of Justice announced that it is investigating whether S&P improperly gave billions of dollars worth of CDOs a triple-A rating. Although it has yet to be named culpable, many on Wall Street are viewing this as guilt by association, and unfortunately, as S&P continues to be plagued by the DOJ investigation, so too does Moody’s. This will put pressure on the stock as it tries to climb back over the $55 mark.
With the exception of Priceline, most of Eton Park’s new positions have been plagued by profit taking, rumors, redundancy and sluggish revenue growth. Still, it’s worth paying attention to Moody’s if it can recover from McGraw-Hill-related issues, and it’s easy to see the appreciative picture with Chipotle. Sprint and Dollar Tree are less attractive from a metric-related standpoint, but that doesn’t mean that Eton’s investments don’t have merit. Our recommendation: continue to monitor this hedge fund regularly.
This article is written by Amy Thielen and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool recommends Chipotle Mexican Grill, Moody's, and Priceline.com. The Motley Fool owns shares of Chipotle Mexican Grill and Priceline.com. 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!