Billionaire Paul Singer’s Latest Stock Picks

ELLIOTT MANAGEMENTPaul Singer founded Elliott Associates in 1977, making Elliott quite old when compared to the rest of the hedge fund industry. The fund recently filed its 13F with the SEC, disclosing many of the long equity positions in its portfolio as of the end of September. We have gone through the filing and identified some of the moves that Elliott made during the third quarter by comparing its positions to those disclosed in previous filings. Here are some increases and decreases in its holdings that we noticed:

Selling Delphi. Singer and his team cut their stake in Delphi Automotive PLC (NYSE:DLPH), a $10 billion auto parts company which manufactures electrical, power, and safety components. The entire auto ecosystem- not just the automakers, but parts companies and auto-related retailers as well, are seeing low pricing as demand remains low. Delphi’s stock price is actually up 51% in the last year as that company has proven more resistant to macro trends- its earnings were actually higher last quarter than in the third quarter of 2011- but it still trades at a fairly low trailing P/E of 9. Fellow billionaire John Paulson’s Paulson & Co. had owned over 32 million shares of Delphi at the end of June (see what other stocks Paulson owned). It looks like a relatively safe auto investment, and seems like it could be a value play, though we understand that Elliott may have wanted to take some profits.

Reed Elsevier. Elliott also initiated a position in Reed Elsevier NV (NYSE:ENL) during the third quarter of the year, with 4.5 million shares in its portfolio at the end of September. The publishing company focuses on research books and journals, and also owns the LexisNexis brand. At a market capitalization of $9.7 billion, the stock trades at trailing and forward P/E multiples of 13 and 10, respectively. We’re not particularly bullish on the publishing industry, but that valuation looks fairly cheap and we might be convinced to take a closer look at the company.

Buying, and selling, tech stocks. The fund made some considerable moves in tech stocks, buying more shares of software company BMC Software, Inc. (NASDAQ:BMC) but selling part of its positions in data storage company Brocade Communications Systems, Inc. (NASDAQ:BRCD) and software provider Compuware Corporation (NASDAQ:CPWR). BMC’s earnings have been down, but Wall Street analysts expect a strong rebound in net income and so the forward P/E multiple is only 10- about half of where the company trades on a trailing basis. We think that we’d avoid a stock that is so dependent on a strong reversal of current trends. See our previous discussion of BMC. Brocade’s earnings multiples actually strongly resemble BMC’s: a trailing P/E in the high teens, and a forward P/E of 9. That company, however, has been converting moderately higher revenues into strong growth in net income. We wouldn’t be sure that it can continue these growth rates, but it could be worth investigating further. Compuware, meanwhile, looks overvalued. It carries a trailing P/E of 26, which we’d normally expect to be accompanied by considerable growth, but earnings actually declined by more than 50% in the third quarter of 2012 compared to a year earlier. We think that selling the stock was a good move on Elliott’s part, and for investors who aren’t involved it could be a short candidate.

We can see why Elliott liked Reed Elsevier, as at least at first glance the stock looks like a good value. We’d say the same about Delphi, and investors who don’t own the stock should consider it, but as we’ve mentioned it’s possible that the fund wanted to lock in some of its gains here. The sale of Compuware also makes sense, but between the other two tech companies we’ve covered here we’d be more interested in looking into an investment in Brocade than in BMC.

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