Billionaire Israel Englander
is a founding member of Millennium Management, with some $22 billion in assets under management. Englander also runs a $200 million subsidiary fund known as Catapult Capital. Founded in 2006, Catapult focuses on fundamental analysis. Outlined below are Catapult’s top five stocks at the end of the first quarter (check out Catapult’s portfolio
Catapult’s number-one stock was Virgin Media Inc. (NASDAQ:VMED), after adding the stock to its portfolio during the first quarter. Virgin is a merger-arbitrage play, where earlier this year Liberty Media Corp (NASDAQ:LMCA) agreed to acquire 100% of Virgin Media for an enterprise value of nearly $23.3 billion.
In looking at the deal, Virgin Media Inc. (NASDAQ:VMED)’s current enterprise value is $23.0 billion, which puts the upside in the shares to approximately 2.5%. Assuming the deal closes in six months, that’s an annualized return of nearly 5%. However, worth noting is that M&A arbitrage comes with risks.
Even still, Virgin Media Inc. (NASDAQ:VMED) appears to be a compelling company. During 1Q, the company improved its average monthly churn rate to 1.1% from 1.2% in the year-ago quarter. Also, during 1Q, the company added a net total of 171,900 Internet TV customers. Some of this robust growth is attributed to Virgin Media Inc. (NASDAQ:VMED)’s leading entertainment business that offers the first “quad” service of its kind, offering television, broadband, fixed-line telephone and mobile-telephone services in the U.K.
Virgin Media Inc. (NASDAQ:VMED) is the U.K.’s most popular residential broadband and pay-as-you-go mobile provider and the second-largest provider of pay television and fixed-line telephone services. From a valuation perspective, Virgin Media Inc. (NASDAQ:VMED) trades at a P/E of only 3.6 times, compared to some of the other major cable and media companies, including BSkyB’s 13.7 times and Comcast Corporation (NASDAQ:CMCSA)’s 17.6 times.
The number-two stock is Hillshire Brands Co (NYSE:HSH) after a 657% increase in shares owned. Hillshire Brands Co (NYSE:HSH) manufactures and markets food solutions for the retail and food-services markets, including top brands Jimmy Dean, Ball Park, Hillshire Brands Co (NYSE:HSH) Farm and Sara Lee frozen bakery. Hillshire is the result of a split of Sara Lee, where the interest in Sara Lee’s international coffee and tea business was spun off as D.E. Master Blenders.
Commodity costs have hurt a number of the major meat producers, thanks to warmer-than-expected weather and drought conditions. This pressure could well continue over the interim. Since the spin-off, Hillshire Brands Co (NYSE:HSH) is looking to undertake various cost reductions. Back in May, the company invested upwards of $100 million for cost cutting, and expects to save $80 million annually between fiscal year 2013 and 2016.
However, from a valuation standpoint, Hillshire Brands Co (NYSE:HSH) appears to be a bit expensive. Hillshire trades at 55 times earnings, while peers Bridgford Foods Corporation (NASDAQ:BRID) and Tyson Foods, Inc. (NYSE:TSN) are at 17 times. With this high P/E ratio and only a mediocre expected EPS growth rate, Hillshire has a high PEG ratio at 2.2.
At the end of the first quarter, there were a total of 32 hedge funds long the stock. Richard Perry’s Perry Capital has the largest position in Hillshire Brands Co (NYSE:HSH), worth $203 million and comprising 6.5% of its 13F portfolio. Sitting in the second spot is billionaire Ken Griffin of Citadel Investment Group with a $120 million position (check out Griffin’s newest picks).
Making up the third largest holding is Advance Auto Parts, Inc. (NYSE:AAP),
after a 751% increase in shares owned during the first quarter. Advance Auto Parts, Inc. (NYSE:AAP)
operates in the U.S. auto-aftermarket industry, selling replacement parts and accessories. Advance Auto Parts, Inc. (NYSE:AAP) also happens to be the second-leading auto retailer catering to the “do it yourself” (DIY) and “do it for me” customers, with a focus on the DIY market, making up 75% of revenue.
Part of what Advance hopes will set it apart from the likes of AutoZone, Inc. (NYSE:AZO) and O’Reilly Automotive Inc (NASDAQ:ORLY) is its focus on the commercial customer base.