Would You Invest In These Companies?

Federico is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In this article I analyze Elliott Management’s holdings. Elliott takes a value oriented, activist approach to investment, meaning that the fund will take on significant, but minority, stakes in companies that are in distress or have not performed as well as their peers, and attempt to affect change within the company's management to deliver the greater shareholder value possible. Over the past 35 years Elliott has produced an extraordinary 14% average annual return after fees, nearly double the price appreciation of the S&P 500.

As explained in my blog, I like to analyze hedge fund holdings. In this article I highlight some investments from Elliott.

Elliott started a position in France Telecom (NYSE: ORAN), the leader in the French telecom market.  France Telecom is not only cheap but also pays a high dividend. It has a P/E ratio of 7x, compared to an industry average of 31.8, and a Price/Sales of 0.6 compared to an industry average of 1.4. It also pays a projected dividend yield of 12%, distributing $0.74 twice a year. France Telecom's shares went down from $17 in the middle of 2011 to the current price of $11. Elliott may think this stock is cheap at current prices.

The fund also bought Reed Elsevier (NYSE: ENL). Reed Elsevier is a provider of professional information solutions to science and medical, legal, and risk management businesses, primarily in North America and Europe. The company's strategy is to concentrate on publishing and information provision through international businesses with strong positions in large and growing markets. This company trades at just 15x earnings, while the industry average is near 30x. Considering it trades at just 11x forward P/E, I think Reed Elseiver is a compelling opportunity to keep track of.

The hedge fund also invested in American Capital Agency (NASDAQ: AGNC). American Capital pays a dividend that yields 15.8%. American Capital trades at 10x earnings, but has the required cash on hand to fund its yearly dividend that amounts close to $1.7 billion. In a recent conference, prominent investor Jeffrey Gundlach warned mortgage REIT investors, explaining that that the dividends on agency mortgage REITs are almost certain to be cut further. Be careful about this stock, despite the fact that Elliott recently invested in it.

Elliott holds a concentrated position in News Corporation (NASDAQ: NWS). News Corporation generates 73% of its operating profit from TV content, and some value investors think that the current price is low because the current valuation still undervalues the stock from the phone hacking scandal. The stock is cheap, trading at just 10x 2013 consensus earnings, and the new CCO, Chase Carey, is more shareholder friendly than the Murdoch family. I also think that the recent split-up between the entertainment and publishing segments is good for shareholders. Elliott also holds 10% of its portfolio in this stock.

martinzaldua has no positions in the stocks mentioned above. The Motley Fool owns shares of France Telecom (ADR). Motley Fool newsletter services recommend France Telecom (ADR). 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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