Hedge fund manger Eric Mindich started Eton Park Capital Management in 2004, after spending 15 years at Goldman Sachs. There, he cut his teeth as the leader of the equities risk arbitrage group. He also managed the equities division for a time. Mindich went on to become a partner at Goldman Sachs when he was 27 years old, making him the youngest partner in the history of the company.
Under Eric Mindich’s management, his Eton Park Capital fund tripled its size in only seven years. The fund recently released its fourth quarter 2011 portfolio holdings. Its total 13F portfolio value dropped from $7.82 billion at the end of September to $6.96 billion at the end of December, corresponding to an 11% decrease. Here we focus on Mindich’s top stock picks and discuss whether we are bullish about them.
The largest position in Eton Park’s portfolio is Viacom Inc. (VIA-B). The firm decreased its VIA-B position by 47% during Q4, but had about $500 million invested in the stock at the end of December, or 11 million Class B common shares. Besides Eton Park, there were 39 hedge funds invested in Viacom at the end of the third quarter 2011, including Chase Coleman’s Tiger Global and Steven Cohen’s SAC Capital Advisors.
Viacom offers a 2.1% annual dividend yield. It has a forward PE of 11.38 and an expected EPS growth rate of 14.34%, so its forward PE for 2014 is about 8.7. We compare Viacom with two of its peers, Time Warner (TWX) and News Corp (NWSA). TWX has an expected EPS growth 12.05%, a dividend yield of 2.8%, and a forward PE of 9.37 for the year 2014; NWSA has an expected EPS growth 20%, a dividend yield of 1%, and a forward PE of 9.8 for 2014. However, we think the media industry is more competitive now than in the past because more and more people are using the internet rather than cable. Even though these companies have similar multiples, we prefer NWSA among these three stocks. This is mainly because we are bullish about News Corp’s business consolidation in the Middle Eastern media market, and we think investors may gain from the company’s share repurchase program in 2012. Eton Park initiated a position in NWSA during Q3 and had the stock as its second largest stock position in the fourth quarter, with $462 million invested in the company. Famous value investor Seth Klarman is also a fan of News Corp.
Eton Park reestablished its position in Bank of America (BAC) by a whopping 20 million shares during Q4, worth $111 million as of the end of December. This is after the firm sold out of its previous BAC position of more than 21 million shares during the third quarter. BAC rallied in 2012 from about $5.5 to $8, likely netting the firm more than 30% profit in this deal. A lot of hedge funds are bullish about BAC, and so are we. There were seventy-five hedge funds held in BAC in the third quarter, with a total investment of $2.3 billion. We think the market has already fully discounted BAC as the financial sector plunged last year, but BAC still has potential risks with its endless mortgage lawsuits, which may not be solved in the short term. We also hold positive opinion over the long-run on other bank stocks such as Citigroup (C) and JP Morgan (JPM). But, investors should still be cautious about them as these banks have significant exposures to the Eurozone. Eton Park had nearly $145 million invested in Citigroup and $78 million invested in JPM at the year-end.
Eton Park also had several other stock positions that we like, including $243 million in Apple (AAPL), $215 million in BP PLC (BP), $187 million in EL Paso Corp (EP), and$43 million in Pfizer Inc. (PFE). These stocks are generally undervalued and are very popular among hedge fund managers, further adding to their appeal. We previously discussed Apple, BP, and El Paso in detail. Apple and BP have really low forward PE ratios and we believe they are very attractive long-term investment opportunities.