Highbridge Capital Management, which has about $29 billion in AUM, was founded in 1992 by Glenn Dubin and Henry Swieca. Following Sweica’s departure in 2009, Dubin serves as the primary manager of the fund (though Highbridge is majority owned by JPMorgan Chase following an investment of $1.3 billion in 2004). In mid-November Highbridge filed its 13F with the SEC, allowing the general public to see many of its long equity positions as of the end of September. Read on to see our analysis of some of the fund’s moves and compare its positions to those disclosed in previous filings.
Joining the rest of the class. Hedge fund favorites Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) were increased from small positions at the beginning of July to about 120,000 and about 130,000 shares respectively by the end of September. Apple Inc. (NASDAQ:AAPL) and Google had topped our list of the ten most popular stocks among hedge funds for the second quarter of 2012. Our current impression of Apple Inc. (NASDAQ:AAPL) is that it’s a good value play at 12 times trailing earnings, even if the company somehow sees little growth going forward, and that investors should be taking advantage of the recent correction. Google we’re less sure about; its multiples are higher (the forward P/E is 14) and growth rates of earnings depend partly on how well the company can integrate its recent acquisition of Motorola Mobility Holdings. The stock could go up from its current levels, but we don’t mind waiting to become more confident in Google’s performance going forward before buying. Highbridge also initiated a position in the well-liked Priceline.com Inc (NASDAQ:PCLN). Priceline- which recently bought Kayak- has shown little sign of slowing growth with its earnings coming in 27% higher last quarter than in the third quarter of 2011. At a market capitalization of $31 billion, it is priced for growth at 23 times trailing earnings, but if the company can continue to turn in better financials that should prove a reasonable price. We’d recommend that investors take a closer look at the company.
United Rentals. Dubin and his team had initiated a position in United Rentals, Inc. (NYSE:URI) during the second quarter, and then had increased their stake by almost 50% over the next three months. United Rentals is a $3.6 billion renter of construction and industrial equipment. As might be expected, its stock price has a strong relationship with the broader economy at a beta of 3, and with construction heating up the stock has risen 56% in the last year. This placed it at 54 times trailing earnings. There’s significant disagreement about its future prospects: Wall Street analysts insist that better earnings numbers are coming, and so the forward P/E is only 8, but the most recent data shows 15% of the outstanding shares are held short as many market players find it overvalued. Bruce Kovner’s Caxton Associates had owned the stock during the second quarter. As with Priceline, more research here might be a good idea.
Selling Superior. Highbridge sold nearly all of its shares of Superior Energy Services, Inc. (NYSE:SPN), whose primary business is providing equipment and services to offshore drillers. Thus far the company has been doing quite well- revenue last quarter was more than double its level in Q3 2011, and earnings were up strongly- and its trailing and forward P/Es are both 8. Our guess is that Superior is so dependent on offshore drilling activity (which is more expensive than onshore drilling, and therefore more dependent in turn on high oil prices to be economical) and the market is so negative on that activity that the stock has been pulled down. At that cheap pricing, however, we actually think that it could be worth a look.
We’d be going against Highbridge by buying Superior, but at first glance the stock does look cheap. We’re more familiar with Apple Inc. (NASDAQ:AAPL), and while we’ve been more noncommittal on the company in the past we think that it quite undervalued at current prices. United Rentals and Priceline- which the fund also bought- could also be good picks if they hold up to further scrutiny.