Checking in on This Ex-Lehman Hedge Fund’s Favorite Equities
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Managed by the former head of Global Trading Strategies for Lehman Brothers, Realm Partners was started in 2009 by Robert Millard with $650 million. Before leaving Lehman as managing director in 2007, a year before Lehman filed for bankruptcy, Millard was given the highest pay package at the firm with $51.3 million, versus the $40 million paid to CEO Dick Fuld. Unfortunately, more than half of that was awarded as Lehman stock, which became virtually worthless after the bankruptcy filing. But the amount was clearly a vote of confidence that Lehman had in the skill that Millard possessed as head of principal trading.
We already know that it has paid off in the past to track top-tier fund managers, and it’s worth asking: has Millard translated that skill into being a fund manager? Let’s take a look at the top five stock picks for Millard and his firm, the $1.1 billion Realm Partners, to see what he thinks are the best equities to own.
An interesting choice for No. 1
At the top of the list is TW Telecom (NASDAQ: TWTC) with 476,992 shares, which comprises 11% of Realm’s total 13F portfolio. TW Telecom was added to the portfolio during the first quarter of 2012 and has been increased by 44% since then. The metrics for TW Telecom are lousy—a price-to-book of 3.7x and a price-to-earnings of 54x—but the company has been able to reduce the percentage of sales it dedicates to costs, which improved its bottom line in the fourth quarter of 2012 by 33%. Since the start of the year, shares of TW Telecom have gone up a modest 2%.
The best of the rest
At number two is Nexen (NYSE: NXY). The Canadian oil and gas company was recently acquired by China’s CNOOC Ltd for $27.50 in cash. Before the acquisition by CNOOC was announced, Nexen was trading at $16-$17 per share. Since Millard bought Nexen during the third quarter of 2012, he has most likely profited somewhere around $4 million from his 400,000 share-position.
Third in this top five is Walgreen (NYSE: WAG). Walgreen stock is up 30% this year and recently hit a new 52-week high of $49.63. So what’s driving its strong performance? Walgreen recently reported second quarter 2013 earnings of $0.96 per share versus $0.78 for the same period a year ago, and 2012 earnings were up 10% from 2011. But looking forward, Walgreen faces some hurdles in the pharmacy provider market with the recent consolidation within the sector from CVS/Caremark, Express Scripts/Medco and SXC Health Solutions/Catalyst Health. In addition, the introduction of more generics caused same-store pharmacy sales to drop 3.4% in March and could continue to be felt for the remainder of the year.
At number four is General Motors (NYSE: GM). The stock has put in an anemic performance this year, up only 0.8% since the first of the year despite a 3.6% increase in sales for the first quarter of 2013 compared to the same period last year. Although sales of the Chevrolet brand were still rather anemic (+1%), the gain came amid a lingering economic slump in Europe. GM is trying to beef up demand for Chevrolet in Europe to offset waning demand in the US. In China, GM has plans to open four more plants over the next three years, expanding its current sales in China from 2.8 million in 2012 to 5 million per year, focusing on SUVs and luxury cars. GM also plans to increase exports to China from 30,000 to 100,000 per year by 2015.
Finally, at number five is Sanofi SA (NYSE: SNY). With 3.3 million shares, Realm is the third largest holder of the French healthcare company among the 450 hedge funds we track, which is up 13% this year, recently hitting a new 52-week high of $54.48. Although Sanofi recently lost its patent protection for Eloxatin, Taxotere and Plavix, it has developed a new drug with Regeneron Pharmaceutical that could help lower cholesterol more effectively than the current statin drugs now on the market. Sanofi is also the manufacturer of Lantus, one of the most popular forms of insulin for the treatment of type-1 diabetes. Sanofi recently announced plans to build a $75 million plant in Vietnam to address growing health care demands in Asia.
Millard’s stock-picking pedigree is clearly unassailable given his reputation at Lehman. But we are unimpressed with the performances of the top five picks and do not see a great deal of upside potential in the majority of these five positions. Most of these companies have been plagued by lackluster consumer demand and poor economic conditions. We would not be at all surprised to see many of these positions scaled back with the release of the Q1 13F filing; continue to check back at Insider Monkey for updates on the portfolio.
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 General Motors. 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!