Billionaire Marc Lasry’s Favorite Stock Picks: Meritor Inc. (MTOR), Gener8 Maritime Inc (GNRT) & More

Marc Lasry is the co-founder of Avenue Capital, which was launched with $7 million in funding from friends and family in 1995, and currently holds the CEO position. Lasry has also invested in Milwaukee Bucks and partnered with Fortress’ Wesley Eden to acquire the NBA team in May 2014 for $550 million. Avenue Capital focuses distressed and undervalued debt and equity opportunities in the U.S., Asia and Europe. It also focuses on real estate and securitized loan obligation.

The equity value of Avenue Capital’s portfolio stood at $427.20 million at the end of the second quarter. According to the fund’s 13F filing for the quarter, transportation stocks accounted for 29% of the portfolio followed by Utilities & telecommunication stocks, which amassed 27%, while consumer discretionary stocks represented 25% at the end of June. In this article, we will take a look at Avenue Capital’s favorite stock picks, in which the fund held the largest positions heading into the third quarter.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

Meritor Inc. (NYSE:MTOR) was Avenue Capital’s second-largest position in the consumer discretionary space, accounting for 8.18% of the total portfolio at the end of June quarter. The fund held 4.85 million shares valued at $34.93 million at the end of June. Among the funds we track, 18 were long the stock at the end of the second quarter, unchanged over the quarter, while the total value of their holdings declined to $164.91 million from $189.15 million and represented 25.70% of the outstanding shares at the end of June. Meritor Inc. (NYSE:MTOR) reported third-quarter earnings of $0.57 per share, beating the estimates of $0.43 per share, while revenue declined by 7.5% on the year to $841 million and topped the expectations by $2.45 million.

Avenue Capital held 7.21 million shares of Gener8 Maritime Inc (NYSE:GNRT) at the end of the second quarter, the value of which stood at $46.16 million and amassed 10.81% of the total portfolio. The hedge fund did not made any additions to its position during the quarter. Gener8 Maritime had 17 funds from our database long its stock at the end of the second quarter, holding $269.65 million worth of shares, which accounted for 51% of the company’s float. A quarter earlier, 20 funds held positions worth $299.63 million in aggregate. Gener8 Maritime Inc (NYSE:GNRT) recently announced that it took the delivery of two “ECO” VLCCs, the Gener8 Perseus on September 9 and the Gener8 Oceanus on September 12 from Hyundai Heavy Industries Co., Ltd and Hyundai Samho Heavy Industries Co., Ltd., respectively. With this delivery, the company now has 15 “ECO” VLCCs in its fleet.

Read about Avenue Capital’s three other favorite stock picks on the next page.

YRC Worldwide Inc. (NASDAQ:YRCW) represented Avenue Capital’s fourth-largest position at the end of the second quarter, accounting for 9.88% of the 13F portfolio value. The fund held  4.80 million shares worth $42.20 million at the end of June. A total of 20 funds tracked by us held $76.21 million worth of YRC Worldwide shares at the end of the June quarter, accounting for 26% of the total outstanding shares, and compared to 23 funds holding $90.66 million worth of shares a quarter earlier. YRC Worldwide Inc. (NASDAQ:YRCW) is scheduled to release its third-quarter results on October 27 and analysts expect the company to report third-quarter earnings of $0.43 per share on revenue of $1.22 billion.

Houghton Mifflin Harcourt Co (NASDAQ:HMHC) accounted for 11.55% of Avenue Capital’s portfolio at the end of the second quarter, with the fund holding 3.16 million shares, the market value of which stood at $49.16 million. During the quarter, Avenue Capital did not add or reduce to its position. The number of investors we track long Houghton Mifflin at the end of the second quarter stood at 24, holding $715.81 million worth of shares, compared to 22 funds holding $848.2 million worth of shares a quarter earlier. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) reported its second-quarter results last month, posting a loss of $0.23 per share, compared to consensus forecast of a loss of $0.02 per share, while revenue for the quarter came in at $392.04 million, missing the estimates by $39.25 million.

Finally, Avenue Capital’s largest holding at the end of the June quarter was in Dynegy Inc.  (NYSE:DYN), in which the fund held 6.73 million shares, after having added 654,683 during the second quarter. The stake was worth $116.07 million and amassed 27.17% of Avenue Capital’s total portfolio. Overall, 43 funds from our database held $1 billion worth of Dynegy shares at the end of the second quarter, accounting for 49.60% of the total outstanding shares. At the end of the first quarter, 41 funds held $689 million worth of shares. Last month, Dynegy Inc. (NYSE:DYN) reported a loss of $6.73 per share in its second quarter. The second-quarter loss though is not comparable to the consensus forecast of a loss of $0.64 per share. The company reported second-quarter revenue of $904 million, missing consensus forecast by $126 million.

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