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Distressed Securities-Focused Investor Bought These Five Stocks; Should You Follow?

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Contrarian Capital was founded in 1995 by Jon Bauer, Janice Stanton and Gil Tenzer after enjoying great success investing in distressed companies while working at Oppenheimer & Co. At the end of the second quarter, the fund’s equity portfolio carried a market value of $145.7 million. Transportation stocks accounted for 30% of the portfolio, while 25% of the funds were invested in technology stocks. Contrarian Capital’s top positions have not suffered significant changes, so, in this article, we’ll take a look at the fund’s top new positions established during the quarter.

Insider Monkey measures a hedge fund’s performance by calculating the weighted average returns of each fund’s long stock positions in companies with over $1 billion in market cap. According to this methodology, Contrarian Capital is currently down 35.7% for the year. The same metric shows the fund registered a negative 22.8% return in the second quarter, one of the worst results among the funds in our database.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see more details here).

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Jon Bauer
Jon Bauer
Contrarian Capital

Big Bet On Air Transportation

First up is Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL), a Brazilian company that offers air transportation services. During the second quarter, Contrarian Capital acquired 190,550 shares worth $2.02 million at the end of June. Only four of the funds followed by Insider Monkey reported a stake in the company, unchanged from the previous quarter. Jim Simons‘ Renaissance Technologies had its stake increased by 124% to 195,840 shares valued at $2.07 million. Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) established an all-time low of $2.40 in February 2016 and has been in an uptrend since then, currently up 228% for the year. The company swung to a profit in the second quarter, posting a net income of 309.5 million Brazilian reais ($98 million). Cost reductions and gains from currency swings were the main drivers. Gol Linhas Aereas Inteligentes SA (ADR) (NYSE:GOL) said costs fell by 5% in the period, while a 9.8% appreciation of the Real against the US Dollar has helped it pocket 778.8 million reais ($246 million). Although the results are promising, the current economic climate in Brazil is still hurting demand for air transportation.

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Merger Play

Another important addition is Amaya Inc. (NASDAQ:AYA), a Canadian provider of online gaming and gambling services. By the end of the second quarter, Jon Bauer and his team had amassed 135,615 shares valued at $2.08 million according to the fund’s latest 13F filing. At the end of June, roughly 31% of Amaya Inc. (NASDAQ:AYA)’s common stock was held by 17 of the funds in our database, unchanged from the end of June. Crispin Odey has also made a big bullish bet on this stock, with his fund, Odey Asset Management Group, having reported a fresh stake that amounted to 9.98 million shares worth approximately $153 million. Amaya Inc. (NASDAQ:AYA) has recently appointed Rafi Ashkenazi as its new CEO, after founder David Baazov stepped down amid allegations of insider trading. Baazov planned to take the company private, but Canadian regulators brought charges against him two months after he made an offer for the company. Amaya is currently reviewing its strategic options and has engaged in talks with a number of entities. “While these discussions are advancing, there remains no guarantee that this process will result in a transaction of any kind,” Amaya said.

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Turn the page to learn about the fund’s top 3 new additions.

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