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Delta Air Lines (DAL), Alibaba Group Holding (BABA), Yahoo! (YHOO): Tip Hill Hunts For Value and Catalysts

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Richard L. Haydon‘s Tip Hill Capital Management recently revealed its equity holdings as of the end of the first quarter in a filing with the Securities and Exchange Commission. Before establishing Tip Hill in July 2009, Hayden was a Partner and Senior Portfolio Manager at Straus Group. He has also served at Leon Cooperman’s Omega Advisors. Tip Hill has a two-pronged investment strategy: a value-oriented long/short approach and investments driven by catalysts such as M&A, spin-offs or management changes. The former strategy focuses on companies with strong free cash flow generation among other factors and has an investment horizon of one to three years and a target return of 50% within two years, while investments under the latter approach last less than a year with an annual return target of 20-30%.

Delta Air Lines, Inc. (NYSE:DAL)

Let us take a closer look at some of the top holdings of the fund formerly known as Yield Capital Partners (Y/Cap Management) until May 2014. Among the fund’s prominent holdings at the end of the first quarter were its stakes in Delta Air Lines, Inc. (NYSE:DAL), Alibaba Group Holding Ltd (NYSE:BABA), Yahoo! Inc. (NASDAQ:YHOO), JPMorgan Chase & Co. (NYSE:JPM), and Micron Technology, Inc. (NASDAQ:MU).

Insider Monkey tracks hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of 6 basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of 7 basis points per month between 1999 and 2012. These stocks were able to generate alpha because of their lower risk profile. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month during this period. These stocks were slightly riskier, so their monthly alpha was 80 basis points (read the details here). We believe investors will be better off by focusing on small-cap stocks rather than large-cap stocks and have built a small-cap strategy that has delivered strong returns doing just that.

Tip Hill held some 200,000 shares of Delta Air Lines, Inc. (NYSE:DAL) valued at $8.99 million at the end of the first quarter. The $37.98 billion company represents about 7.13% of the fund’s portfolio value. A tough year so far has led to the stock declining by 5.33% year-to-date. Along with American and United Air Lines, Delta Air Lines, Inc. (NYSE:DAL) has put up a front against the Middle Eastern Airlines: Etihad, Emirates and Qatar Airways, which it thinks are taking business away on account of unfair subsidies from their respective oil rich countries. Delta Air Lines, Inc. (NYSE:DAL)’s revenue for the first quarter was in line with the estimates and stood at $9.39 billion. An earnings per share (EPS) of $0.45 for the quarter beat estimates by $0.01. Among the funds that we track, Paul Ruddock and Steve Heinz’s Lansdowne Partners held the largest holding in Delta Air Lines, Inc. (NYSE:DAL) at the end of the fourth quarter.

Tip Hill initiated a stake in the e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) during the first quarter, with some 50,000 shares valued at $4.16 million. The stock is down by about 18.32% year-to-date on account of varied factors ranging from weakness in the Chinese economy to increased competition from rival, and even the expiration of shareholders’ lockup period. There is a good chance that the drag of all these factors on Alibaba Group Holding Ltd (NYSE:BABA)’s stock will prove to be short-term and Tip Hill is betting on just that. Other funds betting on the same side as Haydon are Dan Loeb‘s Third Point and Rob Citrone’s Discovery Capital Management.

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