Canyon Capital Advisors was founded in 1990 by Josh Friedman and Mitch Julis and has since grown to $19 billion in assets under management. Before co-founding Canyon, the two had worked together at Drexel Burnham Lambert; Friedman had worked in high yield and private placements following a stint at M&A at Goldman Sachs while Julis worked with distressed and special situation securities. Both are graduates of Harvard’s joint JD/MBA program.
While many value investors start with the income statement- caring about earnings first and foremost- Friedman and Julis like to take an in depth look at a stock’s balance sheet no matter where in the capital structure they are looking to invest (Canyon invests in debt, including high-yield debt, as well as equities). As a result, it tends to favor similar companies for debt and equity investments: solid cash flow generators that tend away from using that cash to grow the business. While many value investors say that they like to balance value metrics with growth characteristics, return on equity, quality management, or some other factor, Canyon at least indirectly claims to put less emphasis on these factors. The fund filed a 13F in November, disclosing many of its long equity positions as of the end of the third quarter of 2012. See what stocks Canyon reported owning or read on for some of the fund’s top picks:
Belo Corp. (NYSE:BLC). The fund owned 4.3 million shares of the $780 million market cap operator of television stations (on average, over 600,000 shares are traded daily). Belo trades at only 8 times trailing earnings, and revenue and earnings grew at double-digit rates in the third quarter compared to the same period in 2011. In addition, the dividend yield is over 4%. Belo was one of Kelly Cardwell’s Central Square Management’s top stock picks last quarter as well (check out Cardwell’s stock picks).
Clear Channel Outdoor Holdings, Inc. (NYSE:CCO). Down 46% in the last year, and not expected to be profitable in 2012 or 2013, this was another of Canyon’s stock picks as the fund reported owning 3.2 million shares. Abrams Capital Management, managed by David Abrams, was another owner of the stock according to that fund’s 13F filing (find more stocks in Abrams’ portfolio). The company looks expensive in terms of EBITDA as well, with an EV/EBITDA multiple of 9.9x.
Jack in the Box Inc. (NASDAQ:JACK). The fast food restaurant company, which also owns Qdoba Mexican Grill, carries a trailing P/E of 22 suggesting that the market expects high earnings growth going forward (though this multiple is not particularly out of place for a quick service restaurant). A member of the company’s Board of Directors bought the stock in late November; insider purchases are bullish signs on average. Canton owned about 680,000 shares of the stock.
Packaging Corp of America (NYSE:PKG). Friedman and Julis cut their stake in the $3.7 billion market cap packaging products company by 43% between July and September, though they still reported a position of about 440,000 shares. Billionaire Jeffrey Vinik, meanwhile, was buying shares (see more stock picks from Jeffrey Vinik). The stock is up 51%, bringing the trailing P/E multiple to 26, as the markets expect a very good 2013 for Packaging Corp.
DeVry Inc. (NYSE:DV). The for-profit education company also remained one of Canyon’s top stock picks despite the fact that the fund sold shares in the third quarter of the year. DeVry is down 40% in the last year, and there’s still quite a bit of short interest in the company. Earnings have been down sharply as well. However, at least in quantitative terms there is a value case to be made if the company can generate a small turnaround, given the trailing P/E of 14. Billionaire Ken Griffin’s Citadel Investment Group increased its holdings of DeVry to a total of 2.8 million shares last quarter (research more stocks Citadel was buying).
