While most hedge fund managers start as analysts or traders, Daniel Khoshaba was an executive at Spie Tool, a company he founded together with his brother and father. In 1991 he left the company to pursue a new challenge in the world of finance. Khoshaba went on to work for Salomon Brothers and Deutsche Bank before deciding to go on his own in 2004. He founded KSA Capital Management, a long/short hedge fund based in Bernardsville, NJ. Khoshaba focuses on consumer, industrials and materials sectors, looking for undervalued companies in which he would make long-term investments and relies heavily on rigorous fundamental analysis. He stated in an interview: “We are looking for companies to transform themselves—not a 2% dividend”. Since its inception, KSA Capital Management has delivered an annualized return of 10.1%. The fund has returned 50% in 2012 and 20% for the first 5 months of 2013.
Among Daniel Khoshaba top stock picks one can find a number of automotive companies as well as manufacturers of industrial and consumer goods. Let us take a look at some of the companies and the financials behind them.
Top dog is AEP Industries (NASDAQ:AEPI), a company that manufactures plastic packaging films. During the previous quarter, Koshaba did not make any changes to this investment, which accounts for 23% of the fund’s portfolio. KSA holds 926,140 shares worth $48.9, according to the latest 13F filing. AEP Industries has a market cap of $223 million and does not pay a dividend. The stock is traded at a trailing Price to Earnings (P/E) ratio of 20.xx, which is in line with the industry average of 20.00. For the fourth quarter of 2013, the company posted revenues of $299 million and earnings per share (EPS) of $0.18. Analysts expect the company to register revenues of $286 million and earnings of $0.8 for the current quarter.
Next up is Owens-Illinois Inc (NYSE:OI), a manufacturer of glass containers. During the fourth quarter of 2013, Koshaba has slightly decreased KSA’s stake to 351,193 shares valued at $12.5 million. Cliff Asness‘ fund, AQR Capital Management has also increased its position to 2.3 million shares worth $82.3 million. Owens-Illinois has a market cap of $5.34 billion and does not pay a dividend. So far this year, the stock has fallen 9% to a current price of $32.40 per share. Four quarter financial results are as follows: $1.7 billion in revenues and a loss per share of $0.53. Market participants expect the company to return to positive earnings in this quarter and are eyeing EPS of $0.61 and revenues of $1.61 billion.
Koshaba opened a new position last quarter through the acquisition of General Motors Company (NYSE:GM): 306,400 shares worth approximately $12,5 million. Hedge fund legends Warren Buffett and David Einhorn also hold significant stakes in the automotive giant. General Motors has a market cap of $54.5 billion and pays an annual dividend of $1.2, which represents a yield of 0.87%. The stock is traded at a trailing P/E ratio of 14.42 and has a levered free cash flow of $227 million. For the three months ending December 31, 2013, the company posted revenues of $40.5 billion and earnings of $0.67 per share. Analysts expect the company to register revenues of $38 billion and EPS of $0.54 during the current quarter.
Another new position created last quarter is Cooper Tire & Rubber Co (NYSE:CTB); Koshaba acquired 430,000 shares valued at $10.3 million. Cliff Asness is also bullish on this stock, having increased his fund’s stake by 59% in the previous quarter. Cooper Tire & Rubber has a market cap of $1.59 billion and pays an annual dividend of $0.42, yielding 1.8%. For the third quarter of 2013, the company posted revenues of $832 million and EPS of $0.0. Market participants expect the company to announce revenues of $774 million and earnings of $0.26 for the fourth quarter. The stock is traded at a trailing P/E ratio of 9.52 and has been trending sideways since the end of 2013.
During the fourth quarter KSA has increased its holding of Dana Holding Corporation (NYSE:DAN) stock by 44% to 434,972 shares reportedly worth $8.5 million. Crispin Odey shares Koshaba’s optimism regarding this stock, having himself increased the stake of Odey Asset Management Group by 29% during the same quarter. Dana Holding has a market cap of $3.23 billion and pays a dividend of $0.2, which represents a yield of 0.9%. The stock has surged 10% so far this year and is currently trading at a forward P/E ratio of 9.76. The company announced revenues of $1.6 billion and EPS of $0.31 for the fourth quarter of 2013. It is expected to post revenues of $1.6 billion and EPS of $0.45 for the current quarter.