Billionaire Glenn Dubin’s Long-Term Stock Picks
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While the primary purpose of Insider Monkey’s database of hedge funds’ 13F filings is to help us develop investing strategies (for example, we have discovered that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year), we can also go through these filings to find a top manager’s favorite stocks in a number of areas.
For example, since it has been a while since the most recent round of 13Fs (in most cases they disclose many of a fund’s long equity positions as of the end of March), we can look for stocks that a fund has owned over the long-term. Investors can then do more research on any names which seem interesting. Read on for our quick take on billionaire Glenn Dubin’s Highbridge Capital Management’s five largest holdings from its most recent filing, in which it also owned at least $100 million at the end of March 2011 (or see the full list of Dubin's stock picks).
Sugarcane in Brazil
The fund reported a position of about 27 million shares in Cosan (NYSE: CZZ), which had also been a top pick two years earlier. Cosan is a Brazilian company which primarily produces a number of products from sugarcane, including sugar and ethanol. At its current market capitalization of $4.3 billion, Cosan is valued at 24 times its trailing earnings. However, Wall Street analysts are bullish on the company’s prospects, with their forecasts for future earnings growth implying a forward P/E of only 9 and a very low five-year PEG ratio.
Four more long-term picks from Highbridge
Dubin and his team increased their stake in DISH Network (NASDAQ: DISH) to a total of 6.8 million shares. In its last quarterly report, DISH experienced a small decline in revenue compared to the first quarter of 2012, with net income dropping by over 40%. While the company’s EV/EBITDA multiple of 8.5x is not out of line for the industry, it does seem a bit high on an absolute basis if the business is not growing. Omega Advisors, managed by billionaire Leon Cooperman, had 3.2 million shares in its portfolio according to its own 13F (find Cooperman's favorite stocks).
Hertz Global Holdings (NYSE: HTZ) has been another of Highbridge’s long-term stock picks with the most recent filing disclosing ownership of almost 9 million shares. Like Cosan, its trailing earnings are fairly low compared to the valuation, but recent growth has been impressive: revenue has been up over 20% from its levels a year ago. Analyst expectations for continued high growth result in a five-year PEG ratio of 0.5, even with the stock having risen over 130% in the last year. It should be noted that Hertz carries a beta of 2.8.
According to the 13F, Dubin had 1.4 million shares of Eaton, the $32 billion market cap power systems and services company, in his portfolio at the end of April. The firm recorded double-digit growth rates on both top and bottom lines in the first quarter of 2013 versus a year earlier. While some further improvements are already incorporated into the current stock price (the trailing earnings multiple is 21), it might be worth looking into Eaton to see if it can continue to sustain high growth rates over the next several years.
Highbridge has been a long-term owner of SEI Investments (NASDAQ: SEIC) as per our database. SEI Investments is a wealth management and investment advisory company with a market capitalization of $5.4 billion. As with some of these other picks from the fund’s portfolio, its financials have shown good growth rates in both revenue and net income over the last year. Again, the earnings multiples are fairly high -- the trailing and forward P/Es are 24 and 19, respectively -- so investors would have to determine if growth will be high enough going forward to make it undervalued at the current price.
These picks are generally dependent on increasing their earnings over the next several years rather than being cheap in value terms. Still, Hertz has been doing well and in that case, analysts at least are forecasting impressive growth going forward; Cosan’s industry can be thought of as having good prospects and so, long-term growth there is certainly believable. Investors interested in SEI’s or Eaton’s industry could certainly look into how much of those companies’ recent performance could be expected to continue.
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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 owns shares of Hertz Global Holdings. 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!