Bernard Selz Grows Bullish On These Stocks

Bernard Selz is the manager of Selz Capital LLC, a New York-based hedge fund founded in 2003. Selz holds a degree from Columbia University and has over 45 years of experience in the investment business. He previously worked with companies like Lazard Freres and Furman Selz before establishing Selz Capital.

Mr. Selz’s fund invests in publicly-traded securities globally and has a public equity portfolio worth more than $429 million as of September 30, up from less than $352 million on June 30. The fund invests primarily in three sectors: energy, transportation, and consumer discretionary, stocks from which account for 27%, 21%, and 16% of the value of the fund’s portfolio respectively. Macquarie Infrastructure Corp (NYSE:MIC) continues to rank as the fund’s most valuable holding as of September 30, accounting for 19.61% of its portfolio’s value.

Selz Capital has 51 holdings as of the end of September, which includes nine positions initiated during the third quarter. In this article we’ll take a look at five of those new additions to Selz Capital’s portfolio during the period. 

Imitating hedge funds and other institutional investors can help identify some of the most profitable stocks on the market. However, our extensive research that covered the period between 1999 and 2012, showed that the best approach is to follow these investors into their small-cap stocks. Our backtests showed that the 15 most popular small-cap stocks among hedge funds managed to generate a monthly alpha of 81 basis points, versus an alpha of 0.7 percentage points posted by their top 50 large-cap picks (see more details).

Let’s start with Liberty Global plc (NASDAQ:LBTYA), a leading international broadband and television company with more than 28 million customers in which Selz Capital added 50,000 shares of to its portfolio during the September quarter. The company operates in more than 30 countries and has been increasing its global footprint through acquisitions. In May, Liberty Global completed the acquisition of Cable & Wireless Communications Plc, to increase its presence in Latin America and the Caribbean. It also recently announced that it was acquiring Multimedia Polska, which is the third-largest cable operator in Poland. Liberty Global plc (NASDAQ:LBTYA) also recently entered into a content partnership with Netflix Inc. (NASDAQ:NFLX), which Mott Capital called “a game changer” in its latest investor letter. Nonetheless, shares of Liberty Global plc (NASDAQ:LBTYA) have declined by more than 21% this year, greatly under-performing the broader Nasdaq market. The value of hedge funds’ holdings in the stock declined by more than 23% to $1.58 billion as of June 30, among the 51 hedge funds in our database which owned the stock.

Selz Capital acquired 310,000 shares of MDC Partners Inc (NASDAQ:MDCA) in the third quarter, adding the advertising and communications company to its portfolio. MDC Partners Inc (NASDAQ:MDCA) lowered its full-year revenue guidance to $1.39 billion-to-$1.42 billion earlier this year from $1.41 billion-to-$1.44 billion after its financial results for the second quarter were below expectations. However, the company believes that it will showcase growth in the second-half of this year; it’s slated to release its third quarter figures on Thursday. Though the company has been increasing its revenue over the last ten years, it has failed to record a profit in any of those years. The company was recently cited in a tweet by Gotham City Research as one which could fit the bill as a company misusing adjusted earnings metrics. The Wall Street Journal reported that several companies have been contacted by the SEC recently regarding their reporting of non-GAAP results, though specific companies weren’t mentioned. 18 hedge funds in our system held 27% of MDC Partners Inc (NASDAQ:MDCA)’s outstanding stock at the end of June, with their holdings valued at $249 million.

We’ll discuss three more new stock picks of Bernard Selz and his team on the next page.

Selz Capital also initiated a position in JetBlue Airways Corporation (NASDAQ:JBLU) during the third quarter, holding 230,000 shares of the company worth more than $3.96 million at the end of September. JetBlue Airways Corporation (NASDAQ:JBLU) has given a return of more than 300% to investors over the last five years, and Selz believes there is yet more room for the stock to run. The company has been successful in growing both its revenue and margins over the last five years. JetBlue reported an increase of 10.8% in its September traffic as compared to last September and expects its capacity to grow by between 3% and 5% in the fourth quarter. With over 925 daily flights, JetBlue Airways Corporation (NASDAQ:JBLU) accounts for more than 5% of the domestic airline market in the U.S. 38 hedge funds that we track were long JetBlue at the end of June, up from 29 at the end of March. They held $479 million worth of JetBlue stock, which represented 9% of the float.

Selz Capital holds 40,000 shares of NetEase Inc ADR (NASDAQ:NTES) as of September 30, taking a $9.17 million position in the Chinese company that provides services for online games, as well as advertising, email, and eCommerce solutions. According to analysts, the company should report earnings of $11.18 per ADR with revenue of $5.3 billion for the current year. NetEase Inc ADR (NASDAQ:NTES) has returned 46% this year and is trading at nearly 25-times earnings. Thanks to the huge internet population in China, and the country’s GDP growth still going strong at 6.7% in the third quarter, despite worries of a slowdown, NetEase appears well positioned for further growth. Since the Chinese government gives strong preferential treatment to domestic companies, NetEase Inc ADR (NASDAQ:NTES) has an almost indomitable position in the Chinese internet market. Almost 19% of the company’s ADRs were owned by 27 of the hedge funds that we track at the end of June.

Lastly is Silver Wheaton Corp. (NYSE:SLW), the world’s largest precious metal streaming company. Selz Capital loaded up on 398,000 shares of the company during the third quarter, making it the fund’s most valuable new holding. Silver Wheaton Corp. (NYSE:SLW) provides finance to mining companies and in return gets purchasing rights to the future production from the miners at very lucrative prices. The stock has returned almost 98% this year thanks to improving gold and silver prices, though shares have declined by approximately 8% in the last month. Precious metals like gold and silver are a preferred investment class for investors in the low-interest-rate environment and given the uncertain global economy. Silver Wheaton Corp. (NYSE:SLW) reported healthy gold sales of 70,000 ounces during the second quarter of 2016. It also increased its stake in the Salobo mine recently and expects total annual production to increase to 330,000 ounces of gold. The number of hedge funds in our system that held the stock declined to 29 at the end of June from 33 a quarter earlier, as some funds took profits off the table from the stock’s first-half run-up.

Disclosure: None