Glenn Russell Dubin is the co-founder of Highbridge Capital Management, a New-York based hedge fund with over $29 billion AUM. Dubin met the other co-founder, Henry Swieca, when they were only five years old. Later, the duo went to State University of New York Stony Brook together. They both went to E.F Hutton after graduation and later convinced their bosses to start their own firm, Dubin & Sweica. In 1987, Dubin and Swieca made 65% when the market was down 22%. In 1992, they launched Highbridge Capital Management with $32 million. They sold a majority stake to JPMorgan Chase (JPM) for $1.3 billion in 2004, but they continue to manage the fund. In 2009, Swieca left Highbridge while Dubin remains the Chairman and CEO of the firm.
Recently, Highbridge Capital released its latest holdings in a 13F filing. In this article, we are going to discuss in detail about a few large positions of the fund and decide whether it makes sense to imitate these stock picks.
Dish Network Corporation (DISH): DISH is the third largest position in Highbridge Capital’s latest 13F portfolio. During the fourth quarter last year, Dubin boosted his DISH stakes by 13%. The top two positions were SPDR S&P 500 ETF Trust Put (SPY) and Cosan Ltd (CZZ), but Dubin did not increase his stakes in these two positions. At the end of last year, Highbridge had $192 million invested in DISH. The stock was quite popular among hedge funds. At the end of 2011, there were 34 hedge funds with DISH positions in their 13F portfolios. Dan Loeb’s Third Point initiated a brand new $114 million worth of DISH over the fourth quarter. Leon Cooperman’s Omega Advisors also had $56 million invested in this stock.
We are also in favor of DISH. For the fourth quarter of 2011, the company reported subscriber net adds of 22,000, heavily beating the analysts’ consensus of only 5,000 net adds of subscribers. Its churn of 1.54% is also better than the expected 1.67%. In the future, we expect DISH’s churn will continue to be stable as its focus on core operations will lead to more moderate churn and sustainable subscribers. Additionally, with better marketing and less aggressive promotions from its competitor DirecTV (DTV), we expect DISH’s subscriber net adds to be better in the year ahead. Most importantly, DISH is a cheap stock. It is trading at a P/E ratio of 8.49, half of 18.50 for its peers. We think the main reason for its low valuation is because of its rapid earnings growth over the past year. Its EPS was up over 50%, while its price did not grow as fast as its earnings. Analysts are a bit conservative about its earnings for the year ahead though. They expect its earnings to be $2.72 per share this year, versus $2.88 per share for the past 12 months. As a result, DISH’s forward P/E ratio is 10.6, higher than its current P/E ratio. Despite that, its forward P/E ratio is still much lower than the industry average of 17.02. Over the long term, DISH’s earnings are expected to grow at an average of 10% per year.
Hertz Global Holdings Inc (HTZ): Dubin also increased his position in HTZ by 8% over the fourth quarter. As of December 31, 2011, Highbridge had $182 million invested in this position. HTZ was popular among hedge funds tracked by us too. At the end of last year, there were 35 hedge funds with HTZ positions. Besides Dubin, James Dinan also invested $100+ million in HTZ. His York Capital Management reported owning $142 million worth of HTZ at the end of 2011.
For the fourth quarter of 2011, HTZ reported significant improvement in its earnings. Its net income was $47 million, or $0.11 per share, for the fourth quarter of 2011, versus net loss of $28 million, or $0.07 per share, for the same quarter a year ago. In fact, the company has demonstrated positive EPS growth over the past few years. Its EPS was $0.4 for 2011, versus -0.12 for 2010 and -0.35 for 2009. We expect such growth will continue in the future. So do analysts. And such expectation is partly reflected in HTZ’s price. The stock’s current P/E ratio is 37.56, relatively high compared with the 17.47 for the average of the road & rail industry. But analysts expect it to have a much higher EPS of $1.23 this year, so its forward P/E ratio is much lower: 11.8, versus 14.53 for its peers. We think investors should “hold” HTZ at this moment. The road & rail industry is highly sensitive to the overall health of the economy. HTZ has a high beta of 2.54, indicating that it is much riskier than the market. If the economy does not grow as fast as expected, HTZ may disappoint.
A few other large positions in Dubin’s portfolio include Metlife Inc (MET), Invesco Ltd (IVZ), and Google Inc (GOOG). Most financial stocks have low valuations as people want to avoid huge losses when/if another crisis occurs. Asset Management company IVZ has a forward P/E ratio of 11.41 and Life Insurance company MET has an even lower forward P/E ratio of 7. Dubin made a fortune from these two positions as both stocks returned over 24% since the beginning of this year, versus 9.75% for SPY. On the other hand, GOOG did not perform very well this year. It lost 3.64% so far. But we are still bullish about this tech giant. Its forward P/E ratio is 17 and its earnings are expected to grow at over 18% per year. This is a much better deal than investing in some utilities stocks with 13-14X multiples and much lower growth rates.