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Cobalt Capital Management’s Top Stock Picks

Wayne Cooperman, son of hedge fund manager Leon Cooperman, got into the hedge fund business himself at 28 when he co-founded Fusion Partners in 1994. The fund’s other partner left in 1999, and Cooperman has re-branded the fund as Cobalt Capital Management. Historically, Cobalt has tended to be overweight the basic materials section of the market. Read on to see the fund’s top five positions or see the rest of the stocks Cobalt owned at the end of June.

Cooperman and his team slightly cut their stake in Agrium Inc. (NYSE:AGU), but the 900,000 shares made it still the fund’s largest holding. The $16 billion market cap Canadian fertilizer and crop protection products company is a good way to play growth in the agriculture industry- it saw double-digit growth rates in revenue and earnings last quarter versus the same period in 2011. It is also a value candidate with trailing and forward P/E multiples of 11 and 10, respectively. Barry Rosenstein’s JANA Partners bought 6.5 million shares of Agrium in the second quarter of 2012, making it the fund’s largest holding; the fund believes shareholder value can be created by splitting the company’s wholesale and retail operations.

Barry Rosenstein JANA PARTNERS

Cobalt increased its position in Atlas Energy LP (NYSE:ATLS) by 4% to a total of 1.4 million shares. Atlas is a producer of natural gas and oil in the onshore U.S. as well as an operator of gathering and processing facilities for natural gas. Atlas’s stock is up 81% over the last year, benefiting from the broader market’s rise and its own tight connection to the overall economy (the stock’s beta is 2.9). However, the company is unprofitable on a trailing basis (likely partly due to low natural gas prices). Wayne Cooperman isn’t the only Cooperman in the stock: his father’s Omega Advisors owned 3.8 million shares at the end of June.

BE Aerospace, Inc. (NASDAQ:BEAV) was another of the fund’s top picks as it reported a position of about 940,000 shares. BE Aerospace is a $4.4 billion market cap company which focuses on products used to furnish aircraft interiors: seats, tray tables, oxygen systems, and beverage makers, to name a few. Its stock is even with the market over the last year, though revenue in its most recent quarter was up 26% and its earnings were up 30% compared to the same period a year ago. The stock trades at 17 times trailing earnings but the Street expects growth over the next several years, with the forward P/E coming in at 13 and the five-year PEG ratio being 0.6.

The fund owned 4.5 million shares of KKR Financial Holdings LLC (NYSE:KFN), the private equity fund made famous by its breakup of RJR Nabisco in the 1980s. The highly levered KKR has been struggling, with its revenue down 27% and its income down 34% in the second quarter of 2012 from the numbers in the second quarter of 2011, and is now a value candidate at a trailing P/E multiple of 7. KKR also pays an 8.2% dividend yield at current prices and dividend levels; dividends were suspended during the financial crisis and then re-initiated at the end of 2009 at a much lower level, but have since risen.

Cobalt initiated a position of about 660,000 shares in Mosaic Co (NYSE:MOS). Mosaic is another agriculture-oriented stock, selling fertilizer and animal feed ingredients. At a market capitalization of $25 billion, it trades at 14 times trailing earnings. However, unlike its peer Agrium, Mosaic has seen a decline in its business in the past several months. Its earnings were down 22% in its last fiscal quarter (the fourth quarter of its fiscal year, ending in May) compared to the same quarter last year. Mosaic is a spinout from Cargill.

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