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Does Adage Capital’s New Move in Slumping Anixter International Inc. (AXE) Signal Turnaround Potential?

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Phil Gross (pictured) and Robert Atchinson’s Adage Capital Management recently boosted its stake in Anixter International Inc. (NYSE:AXE) according to a filing with the Securities and Exchange Commission. The $48.2 billion hedge fund now owns about 1.68 million shares of Anixter, up from the 1.24 million shares that it held previously. The current holding comprises 5.11% of the outstanding common stock of the company, which is engaged in the distribution of communication and security products, including electrical wire and cable products.

Phill Gross

At Insider Monkey, we track 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 underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. 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 (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 142% and beating the market by more than 84 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

Adage Capital was established by the duo in 2001 with a $3.8 billion commitment from their former employer, Harvard Management Company (HMC). While at HMC, Gross and Atchinson formed a team that outperformed the S&P 500 on an annual basis by an average of 4.5%. At the end of March, the market value of Adage’s public equity portfolio stood at $41.02 billion. The portfolio is fairly diversified with its top ten holdings representing 13.87% of the portfolio value, while the healthcare sector comprises about 20% of Adage’s holdings. Apart from Anixter International Inc. (NYSE:AXE), Adage’s top picks among services stocks included Walt Disney Co (NYSE:DIS), Home Depot Inc (NYSE:HD), and CVS Health Corp (NYSE:CVSat the end of the first quarter. Let us have a closer look at these holdings.

Coming back to Anixter International Inc. (NYSE:AXE), in which Adage has held a stake since the second quarter of 2013, the $2.19 billion company’s stock has slumped by nearly 25% year-to-date. In its financial results for the first quarter, Anixter International Inc. (NYSE:AXE) delivered an EPS of $0.81, which was $0.18 below estimates. However, revenues of $1.39 billion were $10 million ahead of expectations. The company recently entered into a definitive agreement to sell its Fasteners segment to American Industrial Partners for $380 million after it had been working for two years to improve its performance. However, Anixter International Inc. (NYSE:AXE)’s management wanted to focus its resources on its cabling and security businesses, which led to the disposal of the unit. The sale, which is expected to close in the second quarter, has also reduced the company’s exposure to Europe, thus leading to more stable top line growth in the future. Among over 700 hedge funds that we track, John W. Rogers‘ Ariel Investments is the largest stockholder of Anixter International Inc. (NYSE:AXE), as it owns some 2.23 million shares valued at $169.89 million.

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