John Burbank founded Passport Capital in 2000 after deciding that financial markets were placing too much emphasis on short-term results and not spending enough time looking at big-picture changes in the world. As such Burbank is more of a macro investor. This philosophy led Passport to short subprime mortgages in 2005, believing that investors were misunderstanding economic conditions behind the business. Passport then returned 219% in 2007. Passport, in contrast to value investors, looks for companies which have the potential for large increases in earnings rather than those which are traded at a low price relative to historical performance.
Burbank has said in the past that basic materials stocks are undervalued as companies generally won’t be able to ramp up production enough to satisfy growing global demand, and so prices will rise (thus unwittingly benefitting basic materials companies). He seems to still have this as an investment thesis: when we look at Passport’s most recent 13F filing, roughly half of its capital is invested in stocks that we’d classify as being in the basic materials sector. Read on for a quick look at five of Passport’s top stock picks and see more stocks the fund owned.
The fund’s top pick was Cytec Industries Inc (NYSE:CYT), a $3.4 billion market cap specialty chemicals company, with Passport reporting a position of 3.2 million shares. Cytec boasted double-digit growth rates of revenue and earnings in the third quarter of 2012 compared to the same period in 2011, yet the market is pricing it (along with many other chemical companies) cheaply: it trades at 15 times consensus earnings for 2013. Billionaire Ken Fisher’s Fisher Asset Management had 1.1 million shares in its own portfolio at the end of September (see more of Fisher's stock picks).
Burbank and his team also liked another chemicals company, Huntsman Corporation (NYSE:HUN), with their stake tripling between July and September to a total of over 10 million shares. At a market cap of $4.3 billion, this chemicals company is even cheaper (at 8 times trailing earnings) though its business has been struggling somewhat. The forward P/E is 9, so even sell-side analysts expect business to cool. Appaloosa Management, managed by billionaire David Tepper, was also buying shares in the third quarter (check out Tepper's favorite stocks).
Passport also owned Vivus, a gold miner, and an energy stock: