5 Stocks Added to Swift Run Capital’s Portfolio in Q2

Swift Run Capital Management is a Virginia-based long/short equity hedge fund founded by Timothy Mullen in 2003. Mr. Mullen holds an M.B.A from Columbia University and before starting Swift Run Capital served as a Senior Investment and Portfolio Manager at VNB Trust, National Association. His fund recently submitted its 13F filing with the Securities and Exchange Commission for the reporting period of June 30, revealing a U.S. equity portfolio worth $156.64 million as of that date.

According to the filing, Swift Run Capital initiated a stake in 14 stocks during the second quarter, while adding to its position in six stocks, reducing its holding in 20 stocks, and selling off nine stocks completely. The filing also revealed that Swift Run Capital’s equity portfolio had a quarterly turnover rate of 40.07% and that its top-ten holdings accounted for over 55% of the value of its equity portfolio. In this post, we will take a look at five stocks that the fund added to its portfolio during the second quarter and try to determine what has the fund bullish on these stocks going into the second-half of 2016.

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Williams Partners LP (NYSE:WPZ)

 – Shares Owned by Swift Run Capital Management (as of June 30): 50,000

 – Value of Holding (as of June 30): $1.73 Million

Let’s start with Williams Partners LP (NYSE:WPZ)., which made its debut in Swift Run Capital Management’s equity portfolio as its 24th-most valuable holding. The rally in natural gas prices this year has led the shares of the Oklahoma-based energy infrastructure MLP to appreciate by 37.46% in 2016. Despite such a significant rise in its share price, Williams Partners LP (NYSE:WPZ) still sports an attractive annual dividend yield of 9.25%. The company recently reported its second quarter results, declaring a loss of $0.49 per share, a far cry from analysts’ expectations of EPS of $0.18. On August 8, Williams Cos. (NYSE:WMB) and Williams Partners LP announced that they have agreed to sell their Canadian businesses to Inter Pipeline for $1.26 billion. As part of the deal, Williams Cos. (NYSE:WMB) waived $150 million worth of incentive distribution rights in the current quarter to facilitate Williams Partners LP’s consent to the sale, in recognition of the value of inter-company contracts. Accounting for this waiver, Williams Partners LP will receive $817 million net consideration from the deal. The company plans to use the proceeds from the sale to reduce its borrowings on credit facilities. Leon Cooperman‘s Omega Advisors initiated a stake in Williams Partners LP during the first quarter, purchasing 1.19 million shares of the company.

Level 3 Communications, Inc. (NYSE:LVLT)

 – Shares Owned by Swift Run Capital Management (as of June 30): 59,980

 – Value of Holding (as of June 30): $3.09 Million

Level 3 Communications, Inc. (NYSE:LVLT) was Swift Run Capital’s 19th-largest equity holding at the end of the second quarter. The communication services company recently reported mixed numbers for its second quarter, which its stock took a beating for, pushing it down to losses of 7.62% year-to-date. While analysts had expected the company to report EPS of $0.44 on revenue of $2.08 billion for the quarter, Level 3 Communications, Inc. (NYSE:LVLT) reported EPS of $0.53 on revenue of $2.06 billion for that period. A day after the company released its second quarter earnings, analysts at JPMorgan Chase & Co. downgraded its stock to ‘Neutral’ from ‘Overweight’, while keeping their price target on it unchanged at $60.  On the other hand, analysts at BTIG Research initiated coverage on the stock with a ‘Buy’ rating and $63 price target on August 8. A hedge fund that upped its holding in Level 3 Communications, Inc. during the second quarter was Stephen J. Errico‘s Locust Wood Capital Advisers, which increased its stake by 24% to 714,930 shares.

We’ll check out the details of three other stocks added to Swift Run’s portfolio in the second quarter on the next page.

Goldman Sachs Group Inc (NYSE:GS)

 – Shares Owned by Swift Run Capital Management (as of June 30): 21,228

 – Value of Holding (as of June 30): $3.15 Million

Moving on, Goldman Sachs Group Inc (NYSE:GS) made its entry into Swift Run Capital’s equity portfolio at the 17th overall spot in terms of value as of June 30. The investment banking giant lost a chunk of its market capitalization at the beginning of this year, which it hasn’t been able to recoup yet, as its shares have been trading in a range for more than six months. On August 1, the Wall Street Journal reported that U.S. authorities have issued a subpoena to Goldman Sachs Group Inc (NYSE:GS) related to its fundraising for Malaysian state fund 1MDB. Two days later, some of the bank’s dirty laundry was resolved when it agreed to pay $36.3 million to settle a case in which one of its former employees allegedly used confidential information to win clients. On August 5, Goldman Sachs revealed in a regulatory filing that the Brexit vote could force the company  to “restructure” some of its operations in the United Kingdom. Following the second quarter earnings and revenue beat by the company last month, several analysts upped their price target on its stock, including analysts at BMO Capital Markets, who raised their target to $214 from $197 on July 27, while keeping their rating on it unchanged at ‘Outperform’. Steve Leonard‘s Pacifica Capital Investments reduced its stake in Goldman Sachs by 2% to 150,320 shares during the second quarter.

Stericycle Inc (NASDAQ:SRCL)

 – Shares Owned by Swift Run Capital Management (as of June 30): 36,760

 – Value of Holding (as of June 30): $3.83 Million

Stericycle Inc (NASDAQ:SRCL) was the only stock from the industrials sector in which Swift Run Capital initiated a stake during the second quarter. Shares of the specialized waste management company suffered beatings this year after the reporting of its quarterly numbers in both April and July. Owing largely to those declines, Stericycle Inc (NASDAQ:SRCL)’s stock is currently trading down by 26.52% year-to-date. Several analysts who track the stock think that it could yet fall further, as the company’s core medical waste business is not growing at a reasonable pace and the strategy it has been following so far of acquiring low-quality businesses at high multiples seems to be backfiring. On July 25, analysts at Imperial Capital downgraded the stock to ‘Underperform’ from ‘In-Line’ and also reduced their price target on it to $93.50 from $100, which is very close to the level at which the stock is currently trading. Tom Gayner‘s Markel Gayner Asset Management also initiated a stake in the company during the second quarter, purchasing 7,000 Stericycle shares.

Energy Transfer Partners LP (NYSE:ETP)

 – Shares Owned by Swift Run Capital Management (as of June 30): 123,320

 – Value of Holding (as of June 30): $4.7 Million

In terms of value, Energy Transfer Partners LP (NYSE:ETP) was the largest stake that Swift Run Capital initiated during the second quarter. Like Williams Partners, Energy Transfer Partners is also a master limited partnership (MLP) whose shares have seen robust gains this year, of 32.17%, owing to the rally in natural gas prices. The MLP currently pays a quarterly distribution of $1.06 per share, which translates into an annual dividend yield of almost 10%. On July 29, analysts at Baird included Energy Transfer Partners in a published list of 14 MLPs whose stocks could see a quick price boost following a distribution cut. For its second quarter, Energy Transfer Partners LP (NYSE:ETP) reported EPS of $0.10 on revenue of $5.29 billion, significantly lower than the EPS of $0.67 on revenue of $11.54 billion that it had reported for the same quarter of last year. Energy Transfer Partners’ stock currently sports an average rating of ‘Overweight’ and an average price target of $45.19 from the 18 leading analysts and research firms on Wall Street who cover it. David Atterbury‘s Whetstone Capital Advisors sold off its entire stake in the company during the second quarter.

Disclosure: None