First Eagle Investment Has A Material Fondness for These 5 Materials Stocks

Mehdi Mahmud-led First Eagle Investment Management recently disclosed its U.S. equity portfolio as of the end of June via a 13F filing submitted with the SEC. Although the fund managed assets worth $97 billion at the end of June, its latest 13F filing shows that only 40% of that figure, or $39.25 billion, was invested in U.S. equities. The filing also revealed that during the second quarter the fund initiated a stake in 39 stocks, increased the size of 91 of its holdings, sold out of 23 stocks, and reduced its position in 101 equity holdings.

An interesting detail that emerged from the filing is that stocks from the materials sector amassed the largest chunk of the fund’s portfolio value at the end of June, at 21%, up from 18% at the end of March. Given that, we’ll take a look at the gargantuan investment firm’s top-five stock picks in the sector as of June 30 in this article and see how those stocks have been performing of late.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

Franco Nevada Corp (NYSE:FNV)

– Shares Owned by First Eagle Investment Management (as of June 30): 7.09 Million

– Value of Holding (as of June 30): $539.12 Million

First on our list is Franco Nevada Corp (NYSE:FNV), in which First Eagle inched up its stake by 1% during the first quarter. Like the stocks of most precious metal mining companies, Franco Nevada Corp (NYSE:FNV)’s stock has benefited greatly from a rally in precious metal prices this year, particularly gold prices, and is currently trading up by 71.5% year-to-date as a result. For its second quarter the company reported better than expected results, declaring EPS of $0.22 on revenue of $150.90 million, while analysts had expected EPS of $0.19 on revenue of $150.52 million. Apart from reporting record numbers, Franco Nevada also revealed that it expects to be close to the top-end of its previously provided guidance ranges for 2016 and is seeing “good news” and renewed activity at many of its non-producing advanced and exploration assets. On August 9, analysts at Bank of America Corp. initiated coverage on the stock with a ‘Buy’ rating.

Agnico Eagle Mines Ltd (USA) (NYSE:AEM)

– Shares Owned by First Eagle Investment Management (as of June 30): 14.03 Million

– Value of Holding (as of June 30): $750.76 Million

Agnico Eagle Mines Ltd (USA) (NYSE:AEM) is the only stock covered in this article in which First Eagle reduced its stake by more than 10% during the second quarter, having brought its holding of the stock down by 12%. Shares of the Ontario-based gold producer have had a stellar rally this year, gaining 126.32% year-to-date. Due to the rapid rise in Agnico Eagle Mines Ltd (USA) (NYSE:AEM)’s stock, analysts at RBC Capital downgraded it to ‘Sector Perform’ from ‘Outperform’, while keeping their price target on it unchanged at $67. In their August 8 note, the analysts said that Agnico Eagle Mines has consistently met or exceeded production targets, but the strong execution is already priced into the current valuation of the stock. Nevertheless, they also acknowledged that the company has several exploration catalysts ahead, including results from its sites at Canadian Malartic, Barsele, Amaruq, El Barqueno and Kittila. Billioanire Ray Dalio’s Bridgewater Associates increased its stake in Agnico Eagle Mines significantly during the second quarter, upping it by 81% to 459,027 shares.

We’ll look for some hidden gems among First Eagle’s favorite materials stocks on the next page.

Goldcorp Inc. (USA) (NYSE:GG)

– Shares Owned by First Eagle Investment Management (as of June 30): 39.46 Million

– Value of Holding (as of June 30): $754.94 Million

Moving on, First Eagle lowered its holding in Goldcorp Inc. (USA) (NYSE:GG) marginally during the April-to-June period, by 1%. The fund initiated its stake in the company exactly a decade ago, during the third quarter of 2006. Though Goldcorp Inc. (USA) (NYSE:GG)’s stock has performed well this year, rising by 66.15%, it is still down by over 60% over the last five years. For its second quarter, the company reported a loss of $0.09 per share on revenue of $753 million widely missing analysts’ expectations of EPS of $0.02 on revenue of $905.66 million. On August 8, analysts at Morgan Stanley published a note in which they initiated coverage on the stock with an ‘Outperform’ rating and $22 price target. In their note, the analysts noted that the underperformance of Goldcorp’s stock this year compared to its peers has created a suitable entry point of investors. John Horseman‘s Horseman Capital Management bought 856,700 shares of the company during the second quarter, taking a new position in the stock.

Barrick Gold Corporation (USA) (NYSE:ABX)

– Shares Owned by First Eagle Investment Management (as of June 30): 37.50 Million

– Value of Holding (as of June 30): $800.71 Million

Amid a 57% rise in Barrick Gold Corporation (USA) (NYSE:ABX)’s stock during the second quarter, First Eagle inched down its holding in the company by 2%. Out of all of the gold mining stocks we have discussed, Barrick Gold Corporation (USA) (NYSE:ABX) has been the best performer this year, rising by 200%. The stock didn’t take a break even when the company reported weaker than expected second quarter results on July 28. According to analysts, that’s because the company displayed strength in other areas during the quarter, such as generating strong levels of free cash flow and raising ample proceeds through asset sales which will help it further reduce its debt load going forward. On August 12, analysts at TD Securities released a note in which they said that the company’s goal of reducing its debt burden to $5 billion from $9 billion by the end of the second quarter is within reach if one takes into account the proceeds it will generate from selling its 64% stake in Acacia Mining and its 50% non-operating interest in Australia’s Kalgoorlie mine. David Iben‘s Kopernik Global Investors reduced its Barrick Gold holding by 15% to 2.56 million shares during the second quarter.

Weyerhaeuser Co (NYSE:WY)

– Shares Owned by First Eagle Investment Management (as of June 30): 37.14 Million

– Value of Holding (as of June 30): $1.10 Billion

Weyerhaeuser Co (NYSE:WY) continued to remain First Eagle’s largest materials sector holding and its fourth-most valuable equity holding at the end of second quarter. The real estate investment trust (REIT) is also the only non-mining stock covered in this article, and the one that has seen the smallest gain in 2016, rising by 5.27%. In May, Weyerhaeuser Co (NYSE:WY) announced that it had agreed to sell its cellulose fibers pulp mills to International Paper Co (NYSE:IP) for $2.2 billion in an all-cash deal. On August 5, the REIT reported its second quarter results, declaring EPS of $0.21 on revenue of $1.41 billion, with its results having fallen from $0.26 and $1.80 billion respectively a year earlier. Currently, Weyerhaeuser’s stock sports an average rating of ‘Overweight’ and an average price target of $34.93 from the 13 leading analysts and research firms on Wall Street who cover it. Matthew Tewksbury‘s Stevens Capital Management initiated a stake in the company during the second quarter, purchasing 307,787 shares.

Disclosure: None