By tracking 13F filings from hedge funds and other notable investors, and then looking at how the prices of the stocks that they owned have changed over the course of a quarter, we can estimate- not calculate precisely due to complexities in when a fund bought or sold, but estimate- the returns that a fund has earned on the long equities side of its portfolio. Of course, a fund can also generate positive or negative returns on the assets it has sold short, but these positions are not publicly disclosed in 13F filings. Pine River Capital Management, by our methodology, has done well so far in 2012: up 21% in the first half of the year, and up another 15% in Q3. Pine River is managed by Brian Taylor and his team. See our data on the fund’s recent holdings or read on for our quick take on some of its top long stock picks.
Pine River owned 11 million shares of American Capital Ltd. (NASDAQ:ACAS) at the end of June. American Capital is a $3.7 billion market cap asset management firm which makes private investments- including debt and equity- in a variety of companies with an overweight attitude towards energy and energy-related businesses. Its stock is up 65% year to date, rising fairly consistently. It trades at 12 times analyst consensus for 2013 earnings. Billionaire John Paulson’s Paulson & Co. and Christian Leone’s Luxor Capital both had large stakes in American Capital over the summer (read our discussion of their purchases of the stock).
Ocwen Financial Corporation (NYSE:OCN) was another of the fund’s favorite stocks with Pine River reporting a position of 3.7 million shares. Billionaire Julian Robertson recently mentioned Ocwen as a good stock pick. The company primarily engages in mortgage loan servicing, with other business activities including investments in subprime mortgage securities. It has risen 146% in 2012, and as such has been a major contributor to Pine River’s good returns. It trades at 9 times forward earnings estimates and a five-year PEG ratio less than 1, so Wall Street analyst consensus is in agreement with Pine River and with Robertson. We plan to look at this stock more closely.
The fund initiated a position of 1.4 million shares in Wells Fargo & Company (NYSE:WFC), which while up 4% in the third quarter of the year was outperformed by many other major banks (Bank of America Corp (NYSE:BAC) was up about 10% over the same period, and Citigroup rose about 20%). Wells Fargo is seen as a safer bank than its peers, resulting in a P/B ratio of 1.3 as investors actually bid up the stock price to a premium on book value (most other major banks trade at a discount to the book value of their equity). Wells Fargo did get double-digit growth rates in revenue and earnings in the third quarter versus a year earlier and trades at only 9 times forward earnings estimates. We think it’s not quite the best buy in the industry, but is becoming more attractive than some other banks. Bank of America, for example, carries a P/B ratio of only 0.5 but a forward P/E of 10, with its revenue and earnings coming in much lower in the third quarter than in Q3 2011. Its assets are cheaper than Wells Fargo’s, but clearly aren’t generating much return on their supposed values.
$1.2 billion market cap residential mortgage services company Walter Investment Management Corp (NYSE:WAC) was another of Pine River’s picks, as the fund increased its stake slightly to a total of 1.2 million shares. Walter’s stock is up 94% so far in 2012, with most of that gain coming during the third quarter of the year. It’s actually unprofitable on a trailing basis, but that is entirely due to a very bad Q3 2011 and has seen positive earnings per share in both quarterly reports so far this year. It trades at a forward P/E of only 9 and could still be a good value.