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$2.5 Billion Hedge Fund Senator Investment Group’s Picks Include Tempur-Pedic International Inc. (TPX)

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Alexander Klabin and Doug Silverman’s Senator Investment Group has filed its 13F with the SEC, disclosing many of its long equity positions as of the end of March. We track these filings for a variety of purposes: we have found that they can be a useful source of information for investing strategies (for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and of course filings from individual managers can serve as a source of free initial investment ideas. We have gone through Senator’s most recent 13F. Read on for our quick thoughts on the fund’s five largest holdings and compare them to previous filings.

Tempur-Pedic International Inc. (NYSE:TPX)

During the first quarter of 2013, Silverman and Klabin’s team initiated a position of 5.3 million shares in Tempur-Pedic International Inc. (NYSE:TPX). The past few years of price action at Tempur-Pedic International Inc. (NYSE:TPX) have been highly volatile, and so far this year the stock has been on an upswing with a 45% gain year to date. The industry is consolidating with the company’s acquisition of Sealy, though trailing earnings are low compared to the current valuation. John Shapiro’s Chieftain Capital had increased its own stake in Tempur-Pedic International Inc. (NYSE:TPX) by 29% during the fourth quarter of 2012, to a total of 7.5 million shares (see Chieftain’s stock picks).

Senator reported a position of 1.6 million shares in

IntercontinentalExchange Inc (NYSE:ICE), an operator of financial markets and clearinghouses with a market capitalization of nearly $13 billion. This stock also looks a bit pricy, with trailing and forward P/E multiples of 24 and 18 respectively. In addition, revenue and earnings were both down last quarter compared to the first quarter of 2012 with net income falling by 8%. It doesn’t look like that good a value to us, and many market players are bearish with 16% of the float held short.
Macquarie Infrastructure Company LLC (NYSE:MIC) was another of Silverman and Klabin’s top picks with the filing disclosing ownership of 4 million shares. Macquarie Infrastructure has a number of business interests including aircraft parking and fueling services, liquid storage, and natural gas. The stock is up 71% in the last year, though financial performance has not been particularly strong. It may be of interest to income investors, however, with a dividend yield of 4.7% going by current prices and recent dividend payments.

The fund added to its stake in Danaher Corporation (NYSE:DHR) and closed March with 3.3 million shares in its portfolio. The $43 billion market cap scientific and industrial equipment manufacturer saw a 13% increase in earnings in the first quarter of 2013 versus a year earlier, though revenue was up only 3%.

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