Why is Howard Marks Betting Big On These Stocks?

OAKTREE CAPITAL MANAGEMENTHoward Marks helped found Oaktree Capital Management in 1995 with a group of individuals who worked at TCW Group. Prior to helping form and taking the lead at Oaktree in 1995, Howard Marks worked for ten years at the TCW Group, Inc. overseeing distressed debt, high yield bonds and convertible securities investments. Oaktree is a Los Angeles based investment firm that specializes in alternative investments and maintains an emphasis on distressed debt, corporate debt and convertible securities. The company manages roughly $78 billion in investment capital for various pension funds, foundations and endowments. The primary focus of the firm is on companies that are less known by major investors and other funds, and are generally considered contrarian investments. According to Oaktree’s second quarter 13F filing, the firm has made investments that indeed adhere to Marks’ motif of investing. Below are a few of Marks’ newest picks, but you can see all of his holdings here.

Oaktree took a new equity position in Getty Realty Corp. (NYSE:GTY), a retail REIT specializing in the ownership, leasing and financing of retail motor fuel and convenience store properties. The company has a sub-$1 billion market cap and only operates in 21 states. Getty has had a positive trend in FFO year-over-year, increasing from $53 million in 2009 to $57 million in 2010 and then $61 million in 2011. The company ceased dividend payments at the end of 2011 and in August 2012 decided to reinstate its quarterly dividend at $0.125, versus the 2011 amount of $0.25. The REIT’s dividend yield is approximately 2.7%, and the company’s funds from operations payout ratio for 2012 is around 40%. The company’s dividend yield is below many of its peers, but it has managed to stockpile cash through the first half of the 2012. This should help keep the dividend relatively safe going forward. The company also had $18 million of cash on hand at the end of the second quarter, compared to only $8 million at the end of 2011. Marks’ interest in Getty is the stock’s first significant interest by a hedge fund (see all the funds that own Getty here).

Tata Motors Limited (NYSE:TTM) Is a manufacturer of commercial vehicles ranging from less than 1 ton to 40 metric tons, as well as passenger cars and utility vehicles. Tata is a top commercial automotive vehicle manufacturer in India by revenue and one of the largest manufacturer of cars in India by unit volume sold. The company is a rather volatile stock, with a 2.32 beta, and mixed earnings the past few quarters. Tata owns over 25% of the market share for four-wheel vehicles sold in India, while its Jaguar and Land Over brands have been losing market share in the U.S. The company currently trades at a trailing P/E of 6, but a forward P/E of 44, with next year’s EPS having been revised several times over the past 90 days. Other notable interest in Tata includes Ken Fisher and Fisher Asset Management, who increased their stake to 4.4 million shares in the second quarter.

The third largest new stake for Oaktree is Ternium S.A. (NYSE:TX), a manufacturing and processing company for steel products for construction, home appliances, capital goods, container, food, energy, and automotive industries. Ternium has missed earnings for the last four quarters and mixed opinions on future auto sales have lead to varying recommendations among analysts. The company trades at a trailing P/E of 11 and a forward P/E of 7. With recent quarterly earnings growth down 44% this may well be a value trap, but both Christian Leone of Luxor Capital Group and Robert Pohly of Samlyn Capital each continue to hold almost 1% of the Ternium shares outstanding.

Oaktree also added the Brazil based integrated oil and gas company Petroleo Brasileiro Petrobras SA (NYSE:PBR). The company is ramping up capital expenditures, with a plan to spend $237 billion over the next five years to help capitalize on its 2010 bill approval to explore and produce oil and natural gas equaling 5 million BOE in Brazil. Lower than expected oil prices have led to downward EPS revisions, but Petroleo still trades higher than its peers on a P/E and P/S basis. However, if investors choose to wait on Petroleo to see a positive ROI on its upcoming CapEx, it will get a 4.2% dividend yield. Sandy Nairn with Edinburg Partners, as of the second quarter, is also invested in Petroleo and has 7.5% of his portfolio concentrated in the stock.

The other Oaktree equity position worth noting is an increase in its previous stake of Vale SA (NYSE:VALE). The firm added 77% more shares of Vale during the second quarter. Vale is Brazil-based metals and mining company. The industry is capital intensive and the industry’s performance is positively correlated with steel demand. Both Vale and the S&P Steel Index are down around 10% year to date to July 31,versus the S&P 1500 index, which is up over 8%. 2012 is expected to continue to be tough for Vale and the steel industry, with Vale revenues expected to come in 17% below those of 2011. Vale sales for 2013 are expected to rebound and be up 10% on rising auto sales and increased nonresidential construction.

Oaktree’s latest picks should at least get investors’ attention, even if they do not agree. His equity portfolio with its newest additions is comprised of companies operating largely outside of the U.S. Marks is considered a contrarian and these new bets go right along with this theme.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

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 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!