Ex-Blackstone Investor Bullish on This ‘Fab Five,’ Including Delphi Automotive PLC (DLPH)

Centerbridge Partners is a +$1 billion hedge fund run by Mark Gallogly, formally with Blackstone.  Although the fund invests in a variety of sectors, more than 90% of its entire equity portfolio is concentrated on only five stocks with a total value of $1,162,448,000. Obviously, Gallogly is very confident that these five stocks are worth such a significant weighting in his portfolio.  Let’s take a look at what they are and what are the expectations for these stocks, because if investors know where to look, they can beat the market by piggybacking hedge funds.

Delphi Automotive PLC (NYSE:DLPH)

Top spot on the Centerbridge roster is Delphi Automotive PLC (NYSE:DLPH).  Centerbridge in the second largest holder of Delphi Automotive PLC (NYSE:DLPH) among the hedge funds tracked by Insider Monkey with 10.3 million shares, a third of the entire Centerbridge 13F portfolio.  Why does Gallogly like Delphi Automotive PLC (NYSE:DLPH) so much?  The vehicle parts manufacturer recently underwent an aggressive restructuring that eliminated much of its unprofitable European businesses.  Even though Delphi Automotive PLC (NYSE:DLPH) is going to have to absorb the cost of this restructuring to the tune of at least $300 million, the longer-term outlook is very bullish.  After reaching its high of $44.45, the stock has come under profit taking pressure, but has yet to breach $44 resistance.

At number two is CIT Group Inc. (NYSE:CIT) and with 8.8 million shares, Centerbridge is the largest holder of CIT Group Inc. (NYSE:CIT) among hedge funds.  Since 4Q 2010, Centerbridge has increased its position in CIT Group Inc. (NYSE:CIT) by 76%.  There are lingering rumors that CIT Group Inc. (NYSE:CIT) will be bought by either Wells Fargo & Co. (NYSE:WFC) or Canada’s Toronto-Dominion Bank (USA) (NYSE:TD). And although the company reported very disappointing earnings for 4Q with net income falling to -$592 million from $14.8 million in 2011, investors are counting on a continued recovery in commercial real estate to bolster banking stocks.  In addition, CIT Group Inc. (NYSE:CIT) has reported an increase in deposits from 2011, which positions the bank for increased loan activity.

Third of the top five is BankUnited (NYSE:BKU), currently 20.5% of the Centerbridge portfolio according to the 4Q 13F.  Analysts point to the recent bout of insider selling as the reason they shifted their average recommendation from a buy to a hold, and after the sell-off from March 5th, BankUnited (NYSE:BKU) is now underperforming both the Dow and the S&P 500. However, like CIT Group Inc. (NYSE:CIT), the stock could benefit from the overall strength in the banking sector.

Coming at number four is Visteon Corp (NYSE:VC), a climate, electronics, and automotive component supplier with a $2.92 billion market cap.  Although revenue was down 9% for 2012 compared to 2011, the percentage of sales dedicated to COGS remained mostly unchanged at 91%.  Net income also improved 25%.  As a result, the stock did not experience any serious selling pressure and even rose to a seven-month high of $60.04.

At last but not least is Quad/Graphics, Inc. (NYSE:QUAD). Since the end of 2010, Centerbridge has increased its holdings in Quad/Graphics, Inc. (NYSE:QUAD) by 28% to 2.3 million shares. The stock currently trades at 1 times book value versus an industry average of 3.5x.  The stock rallied 11% following what was generally considered a bullish earnings report, although revenue was down 2.3%, net income rose from a loss of $47 million to a gain of $87.4 million, and shares have held onto most of their gains thanks to expectations for positive revenue growth.

With 90% of its equity portfolio invested in only five companies, Centerbridge’s strategy seems risky, at least on the long side. However, the fundamentals and recent performance of these stocks suggests that Gallogly has enough confidence this group to pass up a more diversified strategy, and suggests that he’s worth a further look. Learn about his full equity portfolio, on Insider Monkey.

Disclosure: none