Distressed-Debt Specialist Howard Marks Adds Yahoo! Inc. (YHOO), Other Equities to His Portfolio, Ditches Top Holding

Billionaire investor Howard Marks, famous for his investor memos, co-founded Oaktree Capital Management in 1995. The Los Angeles-based investment firm, which has $97 billion in assets under management as of March 31, mostly specializes in distressed-debt, high-yield bonds and value investing. Mr. Marks recently criticized the 2-and-20 fee structure applied by most hedge fund vehicles, saying that “nobody deserves 20 per cent carry unless they are exceptional. The one thing I know is that 40 years ago all hedge funds were run by geniuses, and there [were not many of them]”, said the billionaire investor back in 2015. But there are not 10,000 geniuses overseeing the fast-expanding hedge fund industry, according to Mr. Marks. While Marks is well-known for his famous letters, the performance of his stock picks has not disappointed either. With this in mind, let’s lay out a list of four new equity positions added to the portfolio of Oaktree Capital during the first quarter, as well as one massive position that was discarded.

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Snyder’s-Lance Inc. (NASDAQ:LNCE)

 – Number of shares owned by Oaktree Capital (as of March 31): 1.22 Million

 – Value of Oaktree Capital’s holding (as of March 31): $38.53 Million

Oaktree Capital Management added a stake of 1.22 million shares of Snyder’s-Lance Inc. (NASDAQ:LNCE) to its portfolio during the first quarter of 2016, which was valued at $38.53 million on March 31. The new stake accounted for 0.7% of the fund’s $5.57 billion portfolio at the end of March. In late February, the snack food company completed the acquisition of industry peer Diamond Foods, which had five brands under its umbrella: Kettle Brand potato chips, KETTLE Chips, Pop Secret popcorn, Emerald snack nuts and Diamond of California culinary nuts. Diamond shareholders received 0.775 shares of Snyder’s Lance and $12.50 in cash for each share of Diamond Foods, with the total purchase price amounting to $1.86 billion. As a result, the acquirer’s net revenue for the three months that ended April 2 increased by 15.0% year-over-year to $462.77 million. Snyder’s Lance shares are down by 13% year-to-date. Jim Simons’ Renaissance Technologies owns 511,231 shares of Snyder’s-Lance Inc. (NASDAQ:LNCE) as of March 31.

Yahoo! Inc. (NASDAQ:YHOO)

 – Number of shares owned by Oaktree Capital (as of March 31): 423,626

 – Value of Oaktree Capital’s holding (as of March 31): $15.59 Million

The Los Angeles-based investment firm added a 423,626-share position in Yahoo! Inc. (NASDAQ:YHOO) to its portfolio during the March quarter, which was worth $15.59 million on March 31. It is widely-known that the struggling Internet company has formed a strategic review committee to examine strategic alternatives, including a possible sale or a reverse spin-off of Yahoo’s operating business. Various buyers have been participating in a bidding war for Yahoo’s Web business, which was previously said to be worth $4 billion-to-$8 billion. According to a fresh news story posted by the Wall Street Journal, Verizon Communications Inc. (NYSE:VZ) and other players interested in Yahoo’s core business are anticipated to bid approximately $2 billion-t0-$3 billion in the ongoing auction, which is significantly less than most analysts and investors had anticipated. Thus, Yahoo’s management and activist Jeffrey Smith of Starboard Value LP, who pressured the company to put its core business up for sale, could abandon the sale should the final round of bids disappoint. Yahoo shares are up by 11% since the start of the year. Starboard Value LP reported owning 12.30 million shares of Yahoo! Inc. (NASDAQ:YHOO) through the latest round of 13F filings.

On the next page, we’ll take a look at two other additions to, and a subtraction from, Mr. Marks’ portfolio in the first quarter.

NACCO Industries Inc. (NYSE:NC)

 – Number of shares owned by Oaktree Capital (as of March 31): 154,500

 – Value of Oaktree Capital’s holding (as of March 31): $8.87 Million

Oaktree Capital Management purchased a new stake of 154,500 shares of NACCO Industries Inc. (NYSE:NC) in the first quarter, which were worth $8.87 million at the end of the period. NACCO Industries is a holding company whose principal subsidiaries include: The North American Corporation and affiliated coal companies, which mine coal for use in power generation, as well as provide certain value-added mining services; Hamilton Beach Brands Inc., a designer, marketer and distributor of small electric household and specialty housewares appliances; and the Kitchen Collection LLC, a specialty retailer of kitchenware. The holding company’s revenue for the first quarter dropped to $173.42 million, from $193.73 million recorded for the first quarter of 2015. The top-line results for the first quarter were lower year-over-year at each of the three subsidiaries, especially at the NACoal and HBB subsidiaries. NACCO Industries has nonetheless seen its shares advance by 20% since the beginning of 2016. Renaissance Technologies owns 45,100 shares of NACCO Industries Inc. (NYSE:NC) as of the end of the first quarter.

Blucora Inc. (NASDAQ:BCOR)

 – Number of shares owned by Oaktree Capital (as of March 31): 245,000

 – Value of Oaktree Capital’s holding (as of March 31): $1.26 Million

The Los Angeles-based asset manager also added a 245,000-share stake in Blucora Inc. (NASDAQ:BCOR) to its pool of holdings during the first three months of 2016., with the stake valued at $1.26 million on March 31. Blucora, which operates a Wealth Management business and an online Tax Preparation business, has seen its market value gain 31% in the past three months. The company also operates an internet Search and Content business and an E-Commerce business, which are planned to be divested this year. In October, Blucora embarked on a strategic transformation journey by focusing on the technology-enabled financial solutions market. Precisely, the transformation is set to create a technology-enabled financial solutions company comprised of TaxAct, a digital tax preparation solution, and HD Vest, a business that provides wealth management solutions for financial advisors, which was acquired in December for $613.7 million. During the first quarter of 2016, Blucora named John S. Clendening as President and Chief Executive Officer, with the task of spearheading the ongoing strategic transformation previously announced by the company. Blucora anticipates revenue of $452.0 million-to-$465.5 million for 2016. Steven Boyd’s Armistice Capital had 1.91 million shares of Blucora Inc. (NASDAQ:BCOR) in its portfolio at the end of March.

Oaktree Unloads Massive Store Capital Corp (NYSE:STOR) Position

The $97 billion investment firm co-founded by Howard Marks sold out of its entire 70.34 million-share stake in Store Capital Corp (NYSE:STOR) during the March quarter, which had constituted 21.5% of the fund’s portfolio at the end of December. Store Capital operates as a real estate investment trust (REIT) that invests in single-tenant operational real estate properties. The REIT’s investment portfolio reached $4.3 billion at the end of March, consisting of investments in nearly 1,400 property locations with a base rent of roughly $29.7 million per month. Just recently, analysts at BMO Capital Markets raised their price target on the REIT to $30 from $28 and reiterated their ‘Outperform’ rating on the stock, citing its strong business plan execution. The price target increase was also related to the REIT’s increased acquisition guidance for 2016, to $900 million from $750 million. Shares of Store Capital are 7% in the green year-to-date. Israel Englander’s Millennium Management acquired a new stake of 2.65 million shares of Store Capital Corp (NYSE:STOR) during the first quarter.

Disclosure: None