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A Look at Seneca Capital’s Final Top Stock Picks

2015 was a disappointing year for the hedge fund industry with several funds closing and returning money to their investors. At the end of December, another name added to the list  was Douglas Hirsch‘s Seneca Capital.  However, unlike other lesser-known funds that closed down, both Seneca and Mr. Hirsch are well known on the Street. Mr. Hirsch founded Seneca Capital in 1989 and in the 26 years turned it into one of the most prominent event-driven hedge funds in the world. He is also one of the founders of Sohn Investment Research Conference, which over the years has become one of the most awaited annual events. According to Bloomberg, in a letter to investors, dated December 21, Mr. Hirsch revealed that Seneca’s domestic fund was down by 6% this year and that he “cannot in good faith start next year with the dedication” to manage capital for outside investors. In this article we will take a closer look at the top five stocks the fund was betting on going into the fourth quarter and their performance.

In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Insider Monkey looks at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge, not because they are not good at picking stocks on the long side of their portfolios. Hedge funds did in fact manage to outperform the market on the long side of their portfolios. In fact, the 15 most popular small-cap stocks among hedge funds has returned 102% since the end of August 2012, beat the S&P 500 Index by 53 percentage points (see the details here).

Douglas Hirsch
Douglas Hirsch
Seneca Capital

#5 Perrigo Company plc Ordinary Shares (NYSE:PRGO)

– Shares Owned by Seneca Capital (as of September 30): 77,900

– Value of Holding (as of September 30): $12.25 Million

Shares of Ireland-based pharmaceutical company Perrigo Company plc Ordinary Shares (NYSE:PRGO) shot through the roof at the start of the second quarter after generic drug-maker Mylan NV (NASDAQ:MYL) offered to buy the company for $29 billion. However, in the third quarter, as it started becoming clear that the deal wouldn’t go through, Perrigo Company plc Ordinary Shares (NYSE:PRGO)’s stock lost most of those gains. This perhaps explains why after initiating a stake in Perrigo during the second quarter, Seneca Capital reduced it by 62% during the third quarter. On November 13, shares of Perrigo fell after the company’s shareholders rejected Mylan NV’s $26 billion hostile bid for the company. The stock hasn’t been able to recover since then and lost around 20% since the end of July. Billionaire John Paulson‘s Paulson & Co initiated a stake in Perrigo during the third quarter by purchasing almost 3 million shares of the company.

#4 H & R Block Inc (NYSE:HRB)

– Shares Owned by Seneca Capital (as of September 30): 389,000

– Value of Holding (as of September 30): $14.1 Million

H & R Block Inc (NYSE:HRB)’s stock had a spectacular rally of almost 23% during the third quarter, but most of those gains were washed off recently when the company announced its fiscal 2016 second-quarter results on December 7. While analysts had expected the company to report a loss of $0.48 per share on revenue of $132.13 million, the company declared a loss of $0.51 on revenue of $128 million. Following the earnings release, on December 9, analysts at Piper Jaffray reterated their ‘Buy’ rating on the stock, but reduced their price target to $42 from $44. Apart from Seneca Capital, which more than doubled its stake in the company, billionaire Israel Englander‘s Millennium Management also nearly doubled its stake in H & R Block Inc (NYSE:HRB) to over 2.4 million shares during the third quarter.

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#3 Sealed Air Corp (NYSE:SEE)

– Shares Owned by Seneca Capital (as of September 30): 421,000

– Value of Holding (as of September 30): $19.74 Million

After reaching their lifetime high of $55.84 in August, the stock of food safety and hygiene company Sealed Air Corp (NYSE:SEE) have declined by almost 20% since then and are now trading with year-to-date gains of only 6%. On December 17, the company announced that it has acquired Dry Lube Ltd. (DL) and its subsidiary Dry Lube Inc., which provide a specialized, water-free conveyor lubrication technology for the food and beverage industry. The company is scheduled to report its fourth-quarter results in February and analysts estimate EPS of $0.50 on revenue of $1.78 billion, lower than the $0.59 and $2 billion, respectively, it had reported for the same quarter last year. Dan Loeb‘s Third Point increased its stake in Sealed Air Corp (NYSE:SEE) by 9% to 5.25 million shares during the July-September period.

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#2 Yahoo! Inc. (NASDAQ:YHOO)

– Shares Owned by Seneca Capital (as of September 30): 686,200

– Value of Holding (as of September 30): $19.84 Million

Having lost over one-third of its market capitalization, Yahoo! Inc. (NASDAQ:YHOO) has turned out to be one of the worst performing large-cap tech stocks this year. However, Seneca Capital raised its stake by 48% during the July-September period. Yahoo has been one of the most widely-discussed stocks in 2015 amid investors’ pressure to unlock its intrinsic value. The company had initially planned to spin-off its equity holding in Alibaba Group Holding Ltd (NYSE:BABA), but, in December, it announced plans to spin-off its core business and some other assets, such as the stake in Yahoo Japan. Nevertheless, Yahoo’s stock ended 2015 with losses of more than 30%. Billionaire David E. Shaw‘s firm, D.E. Shaw, nearly doubled its stake in  Yahoo! Inc. (NASDAQ:YHOO) to over 10 million shares during the third quarter.

#1 Allergan plc Ordinary Shares (NYSE:AGN)

– Shares Owned by Seneca Capital (as of September 30): 120,600

– Value of Holding (as of September 30): $32.78 Million

After reducing its stake in Allergan plc Ordinary Shares (NYSE:AGN) by 17% during the second quarter, Seneca Capital again reduced its stake in the company by 5% during the third quarter. However, Allergan plc Ordinary Shares (NYSE:AGN) still remained the fund’s top pick going into the fourth quarter. Allergan was also the most popular stock among the investors we track, with 151 funds reporting long positions as of the end of September, including 26 funds managed or founded by billionaires. Shares of Allergan have remained range bound ever since the Allergan-Actavis merger was completed on June 15 and are currently trading up by over 22% for the year. On November 24, pharma giant Pfizer Inc. (NYSE:PFE) announced that it would acquire Allergan plc Ordinary Shares (NYSE:AGN) for $160 billion. Ever since the announcement the deal has been receiving a lot of flak from regulators and lawmakers as it will allow Pfizer Inc. to change its headquarters to Ireland via ‘corporate inversion’ and reduce its tax liabilities in the U.S. Activist investor Carl Icahn recently wrote an article in which he called the deal a ‘travesty’, arguing that it will open floodgates for other US-based companies to leave the country. On December 2, analysts at Leerink Swann reiterated their ‘Outperform’ rating on the stock, while raising their price target to $393 from $355. Richard Gerson and Navroz D. Udwadia‘s Falcon Edge Capital increased its stake in Allergan by 63,000 shares to 592,542 shares during the third quarter.

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Disclosure: None

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