Hillshire Brands (HSH) & Other Lesser Known Stocks From Rivals Bill Ackman and Dan Loeb

Page 1 of 2

Hedge funds generate a substantial portion of their alpha from the small-cap space. On the whole, public research about the little guys tends to be less efficient. According to our own analysis, investing in hedgies’ most popular small-cap picks has produced an alpha of close to 120 basis points per month. We started publishing a quarterly newsletter at the end of August and shared the stock picks of this strategy. Since then this strategy returned 14.3% (between September and December) vs. 2.1% for the S&P 500 index (see the full details of our small-cap strategy).

While input from prominent investors is always appreciated, it’s important to take a more detailed look at each company, analyzing the specific reasons why hedge funds may be long.

Dan Loeb and Bill Ackman, two top-tier hedge fund managers and Herbalife rivals, have been in the news quite a bit recently, so we’re going to extend our analysis to this duo. Focusing on market caps between $1 billion and $5 billion, let’s take a look at some of the top small-cap stock picks Loeb and Ackman have in their portfolios.

According to the latest 13F filing from Pershing Square Capital, Ackman’s fund, its top small-cap pick was real estate developer Howard Hughes Corp (NYSE: HHC). Pershing Square maintains a relatively large but concentrated equity portfolio in general, and Howard Hughes comprises about 2.8% of its $8.9 billion worth of holdings (see all of Bill Ackman’s favorite stocks here).

Ackman helped the company spinoff from General Growth Properties—another one of his holdings—and since hitting the markets in November 2010, shares of Howard Hughes have returned 91.4%. Whitney Tilson, one of Ackman’s best buds in the hedge fund industry, gave an updated presentation on Howard Hughes at last year’s Value Investing Congress. As we mentioned in our original analysis (see the full recap of Tilson’s presentation), the primary bullish thesis here is that HHC’s assets are priced less than their fair value.

Tilson, who credited the investment idea to Ackman, notes the company’s properties in Las Vegas, Houston, Honolulu and South Street Seaport as particularly attractive. Shares of HHC currently trade at a price-to-book ratio below 1.3x; this is nearly a 13% discount to its industry’s average.

PERSHING SQUAREMoving on, Alexander & Baldwin (NYSE: ALEX) is another small-cap pick of Bill Ackman and Pershing Square Capital. Like Howard Hughes, Alexander has its fingers in real estate, with a focus on both agricultural and commercial properties. The crux company’s of the company’s operations is in Hawaii, where it owns close to 90,000 acres of land. Interestingly, Alexander also owns Hawaiian Commercial and Sugar, a sugarcane cultivator and renewable energy provider.

ALEX spun off the smaller Matson Inc. (NYSE: MATX)—its shipping and logistics segment—into a separate entity last year, likely a move to stimulate shareholder value. The sell-side expects Alexander’s earnings to grow by close to 44% over the next year, and analysts’ five-year EPS forecasts fall in the range of 10% on average.

It’s worth mentioning that Ackman also holds a decently sized share in Matson, slightly larger than his position in Alexander. Over the long run, a spun off company tends to provide investors with more value than its parent, though it’s a bit too early to tell if this historical precedent holds true in this case. Over the past three months, shares of Alexander have actually outperformed Matson by about 20 percentage points. Both stocks have been in the green.

At a forward P/E near 19x and a sales multiple of 0.7x, Matson looks like the better value play at the moment, and five-year earnings growth is expected to be near that of Alexander. Alexander currently trades at a forward P/E of 50.4x and sports a sales multiple above 4.0x. As of his last 13F filing, Ackman held almost twice as many MATX shares as he did ALEX, so it’s quite possible he’s banking on long-term value more so than recent appreciation.

What about Dan Loeb?

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!