Marc Lasry was one of the highest paid hedge fund managers in 2010. His Avenue Capital Group invests much of its capital in debt, but its recent 13F filing with the SEC disclosed a few long equity positions as well. By looking at the fund’s positions, we think that investors and market watchers can get a feel not only for specific names that Lasry likes but also for what he and his team at Avenue are thinking about the markets. Here are some investment themes that we noticed in the 13F for the quarter ending in September 2012:
The auto industry. Avenue reported equity positions in both General Motors Company (NYSE:GM) and TRW Automotive Holdings Corp. (NYSE:TRW). TRW is a $5.7 billion market cap auto parts company focused on steering, brakes, and safety systems which has risen 41% year to date as the market apparently sees demand for its products picking up in an improved market. Its revenue and earnings were both slightly higher in the third quarter than in the same period in 2011. As with nearly the entire ecosystem around auto companies, its earnings multiples are very low: it trades at trailing and forward P/Es of 6 and 7, respectively. So if TRW can hold its ground financially, it will be a good value (in other words, it does not need to actually improve its current business). GM is not quite in the same boat. It trades at 9 times trailing earnings, with Wall Street analysts expecting growth next year and bringing the forward P/E even with TRW’s at 7. Billionaire David Einhorn had named GM one of his long stock picks at the Value Investing Congress (see more stocks owned by billionaire Einhorn’s Greenlight Capital and read why Einhorn isn’t giving up on GM). Our first impression is that between these two companies we’d rather own TRW; of course, we’d have to build up our confidence in the auto market first.
CIT. The fund sold a small portion of its shares in $7.3 billion market cap commercial lender CIT Group Inc. (NYSE:CIT), but the stock remained a major position in its 13F portfolio. CIT trades at a small discount to the book value of its equity at a P/B ratio of 0.9, though the company has turned in negative earnings so far this year. The sell-side does expect better numbers in 2013, with consensus estimates for the year implying a forward P/E of 10. Bruce Berkowitz’s Fairholme had about $500 million invested in CIT at the end of June, making it one of the fund’s top five holdings by market value (find more of Bruce Berkowitz’s favorite stocks). We might take a closer look at the company, though we’d have to see strong evidence that its bottom line will actually improve.
Magnachip. Lasry and his team added some shares to their stake in semiconductor manufacturer Magnachip Semiconductor Corp (NYSE:MX). Magnachip is valued at about $430 million, though its average daily volume over the last three months has been about 100,000 shares and the current stock price is about $12 (making it possible for most investors to establish a small position if they so choose). Magnachip is down 11% from its IPO levels in March 2011, but now trades at only 5 times earnings (on both a trailing and forward basis). Those valuation statistics do look interesting, though given the company’s small size it might not be worth investigating further.
CIT and GM are becoming popular value plays, but we’re not sure about that either is a stable enough company to be a screaming buy at the current price. TRW looks interesting- cheaper than automakers in general, and with a business that has been performing better recently. It might be a good idea to take a look at that stock and see if it would work in place of buying an automaker like GM or Ford.