Our analysis of hedge funds’ 13F filings over time has found that their most popular small cap stocks earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). We think that this is because large institutional investors such as mutual funds pay less attention to small caps (which we define as those with market capitalizations between $1 billion and $5 billion), making it more likely that they will be either undervalued or overvalued. Given this finding, we like to go through 13Fs from individual managers in search of overlooked opportunities which investors may appreciate. Read on for our quick take on the five largest small cap holdings in billionaire Israel Englander’s Millennium Management’s portfolio as of the end of March or see the full list of the fund’s stock picks.
One of Millennium’s largest holdings overall by market value was its 2.5 million shares of Gulfport Energy Corporation (NASDAQ:GPOR), a $3.6 billion market cap oil and gas exploration and production company whose assets include substantial acreage in the Utica and Bakken Shales. The company’s net income was up considerably in the first quarter of 2013 versus a year earlier, though the market has already priced in quite a bit of growth at Gulfport Energy Corporation (NASDAQ:GPOR)- the trailing P/E is quite high, at 33. We’d want to wait for another quarter or two to see how earnings go.
Englander and his team increased their holdings of McDermott International (NYSE:MDR) to a total of nearly 6 million shares by the end of Q1. McDermott International (NYSE:MDR) is an oilfield services company focusing on providing equipment and services related to offshore drilling. The stock price is down 17% in the last year as the company has suffered shrinking margins, which have in turn generated a decline in earnings going by recent reports. The combination of these trends has resulted in a market cap of $2 billion, or 12 times trailing earnings.
According to the 13F, Millennium owned about 870,000 shares of $3.7 billion market cap industrial machinery manufacturer Gardner Denver, Inc. (NYSE:GDI) as of the beginning of April. Gardner Denver, Inc. (NYSE:GDI) is another business which hasn’t been doing particularly well recently, reporting double-digit declines in both revenue and net income in its most recent quarter compared to the same period in the previous year. The valuation is fairly low here, but the stock is not in pure value territory (the forward P/E is 12, for example), and so we’d avoid it.