You Should See Eton Park's Holdings

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In this article I analyze multi-strategy hedge fund Eton Park Capital Management that was founded by Eric Mindich in late 2004 in New York City with a then unprecedented startup capital of 2 billion dollars with a targeted closure of 3.5 billion dollars. I stressed many times in my blog to study what top hedge fund holds in their portfolios. Let’s analyze Eton Park’s current holdings:

Technology picks

Eton Park just holds two stocks in the whole technology sector: Apple and eBay.

Let’s focus on eBay (NASDAQ: EBAY). I think that online sales will keep growing at double digits for the foreseeable future. In fact, both eBay and PayPal reported a surge in mobile volumes during the recent peak days of holiday shopping. The company reported Q3 EPS $0.01 better than consensus estimates while growing revenues 14.8% year/year to $3.4 billion vs the $3.4 billion consensus expected. This kind of revenue growth points me that the core business is strong. PayPal delivered a strong Q3 performance, ending the quarter with 117.4 million active registered accounts, a 14% increase over the third quarter of 2011. Marketplaces delivered another strong quarter with accelerating user growth. Gross merchandise volume (GMV), excluding vehicles, increased 11% year over year to $16 billion in the third quarter of 2012. The company has a 5 year expected growth rate of 15% while its forward P/E is 17x which shows that valuation is not stretched from eBay’s future growth. I like eBay’s entry into the retail segment. eBay reached an agreement with Discover Networks, which has agreed to accept Paypal Cards on Discover machines covering more than seven million retail outlets across the U.S. Once eBay issues PayPal cards to its 50 million odd active users in the U.S., its payment services would assume the characteristics of typical payment processors like Visa or MasterCard. Also, while online payments are increasing by the day, the offline retail segment remains huge for PayPal. I think eBay could be one of the best picks for 2013.

Eton Park likes media stocks

Eton holds concentrated positions in News Corporation, Viacom and Liberty Global.

News Corporation (NASDAQ: NWS) is a very interesting pick shared by Eton, Viking Capital, Baupost and Maverick. The company generates 73% of its operating profit from TV content and some value investors think that the current price is low because of 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. Both Baupost and Eton holds 10% of their portfolios in this stock so the opportunity should be big.

Liberty Global (NASDAQ: LBTYA) is also a pick shared by many value managers. In the recent report, Liberty reported a strong revenue growth of 6% and EBITDA growth of 3.5% which seem quite low for a high growth stock but are high compared to LBTYA historical metrics. For the second consecutive quarter, new customer additions soared past estimates. Liberty has added about 900,000 new revenue generating units, about double the pace Wall Street expected. I think that with the free cash flow these record additions bring to the company, Liberty will continue to aggressively buy back its shares. I like the company’s shareholder oriented management and recent results.

The only pick in retail

Eton seems to analyze Dollar General as an undervalued retail pick considering it is one of the fund’s biggest positions that was increased by 11% last quarter.

Dollar General (NYSE: DG) has been in a clear downtrend since last July. In a recent report Barclays noted a broad-based slowdown in spending by low and middle-income consumers but it does not think that dollar stores have lost favor with shoppers. In the recent earnings report, DG management explained that the slowdown is leading to a more competitive environment. On the call management sounded clearly concerned regarding the promotional outlook and the health of the low-end consumer. I think that investors will go for stocks more levered to a stronger US consumer and DG shares will be pressured in 2013. While shares trade at 15x forward P/E, which is neutral to DG’s averages, I think that shares could go to the $38/40 level which is a price range that assumes a stagnant growth in Dollar General metrics, which I think will materialize next year. Just be cautious on this pick.



martinzaldua has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend eBay. 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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