Value Investor Karen Finerman Is a Buyer of Financials and Industrials

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Readers may recognize Karen Finerman’s name from her frequent appearances on financial television. Ms. Finerman is a permanent member of CNBC’s Fast Money financial talk show, held Monday through Thursday at 5 p.m. ET.

Finerman graduated from the University of Pennsylvania’s Wharton School and co-founded Metropolitan Capital Advisors in summer 1992. She currently serves as CEO and co-manages nearly $100 million in assets within her hedge fund. Finerman differentiates herself from the other panelists on Fast Money with her value-oriented approach to investing, and generally maintains a buy-and-hold strategy within the Metropolitan Capital portfolio.

During the fourth quarter of 2012, Metropolitan Capital Advisors increased its exposure to financials and industrials. Let’s take a look at Finerman’s new positions, her potential reasons for investment, and if the original buy-and-hold theses is still intact.

American International Group (NYSE: AIG)

Finerman indicated she was a buyer of AIG on television during December when the U.S. Treasury stated it would sell its remaining 234M shares of the company at $32.50. She correctly pointed out that when the government sold its shares of General Motors, the stock rallied afterwards and the offer price hasn’t been seen since.

We’ve seen the same reaction in AIG as Finerman indicated in General Motors, with AIG shares closing at $38.35 on February 15, significantly higher than the government's $32.50 offer price.

It seems more upside is in store for AIG, as the Wall Street community continues to view the company favorably. Analysts at William Blair recently stated that they believe now is a good time to purchase commercial insurance stocks such as AIG with earnings potential coming out of a cyclical trough.

For further reading on AIG, please reference Insiders Love This Back from Dead Financial. Shares of AIG have risen approximately 13% since I published the article on December 13.

Citigroup (NYSE: C)

Metropolitan Capital Advisors also initiated a new position in Citigroup during the fourth quarter. In my opinion, Finerman’s taste for Citigroup improved dramatically upon the departure of former CEO Vikram Pandit. While it’s difficult to cite specific reasons why Finerman didn’t have a preference for Pandit, I’ve gathered this opinion through anecdotal comments she’s made over the last 5 years.

Moving forward to the present, Citigroup has installed Michael Corbat as its new CEO and Finerman is attracted to the bank because it is undervalued relative to others in the sector such as J.P. Morgan. Citigroup trades at 0.71x book value based on the most recent data, compared to J.P. Morgan which is priced at 0.95x book value.

Although Citigroup reported lower-than-expect EPS for the fourth quarter, analysts at both CLSA and Oppenheimer have expressed bullish remarks following the January 17 earnings release.

Gardner Denver (NYSE: GDI)

Metropolitan Capital Advisors purchased shares of Gardner Denver as well as GDI call options during the fourth quarter. This is Finerman’s largest new position at her hedge fund, as she purchased 24,300 shares of this industrial machinery manufacturer between October 1 and December 31.

Shares of Gardner Denver spiked from $54.75 to $66.00 during October 24-25 when the company confirmed it was exploring “strategic alternatives” and hired Goldman Sachs as its financial advisor. Readers may learn of Finerman’s position just in time, as the company is still exploring the sale of its business.

In my opinion, Finerman’s involvement indicates that she still finds the valuation to be attractive at current market prices. GDI has been in a tight trading range since the initial news in late October, and I’m willing to bet that Finerman didn’t make her purchases until after the news was announced.

On February 11, MKM Partners upgraded Gardner Denver to Buy from Neutral with an $82 price target, citing a favorable risk/reward potential ahead of the upcoming leveraged buyout. The financial media is also reported that Gardner Denver expects to receive final bids by Thursday, February 21.

Foolish Bottom Line

Karen Finerman generally maintains a buy-and-hold approach to her investments and maintains low turnover in the Metropolitan Capital portfolio. Therefore, readers can greatly benefit from studying her investment activity. The fundamental bull cases for AIG, Citigroup, and Gardner Denver remain very strong, and I recommend the purchase of all three.

Metropolitan Capital Advisors is required to disclose its March 31, 2013 holdings within 45 days after the quarter end. Visit after the May 15, 2013 deadline, and I will update readers on Finerman’s activity during early 2013.

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johnmacris has no position in any stocks mentioned. The Motley Fool recommends American International Group. The Motley Fool owns shares of American International Group and Citigroup Inc and has the following options: Long Jan 2014 $25 Calls on American International Group. 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!

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