Legg Mason’s Top-Performing Small Caps

Page 1 of 2

Small-cap and mid-cap stocks do not get as much coverage from bankers and third-party analysts, often leaving them less efficiently priced versus larger stocks. Hedge funds sometimes take advantage of this by dedicating their research teams to work on these lower-valuation stocks, and they often earn substantial alpha from their investments. Based upon our analysis of many hedge funds’ small-cap holdings, we’ve determined that the most popular small-cap stocks among hedge funds can earn about 120 basis points of alpha per month. We started publishing a quarterly newsletter at the end of August and shared the stock picks of this strategy. Since then, this method has returned 23.9% vs. 7.4% for the S&P 500 (learn more about our hedge fund small cap strategy here). Along that same vein, here are five stocks which Bill Miller of Legg Mason Capital Management owns as of his recent 13F filing that had market caps between $1 billion and $5 billion and provided huge returns for 2012.

Bill Miller

Bill Miller’s best-performing stock in our small cap range was Exterran Holdings, Inc. (NYSE:EXH). They offer solutions for producing, processing, and transporting oil and gas, primarily in the field of natural gas compression. The stock more than doubled from a year prior, rewarding investors with a 119% gain. As with many of the smaller oil & gas plays, speculation is rampant and can cause such rises without traditional fundamental support. Analysts are a bit burnt out with EXH’s rise and advise a hold from here on out. Billionaire Ken Griffin of Citadel Investment Group has a debt investment in EXH to the tune of $28mm; see his other bond holding here.

Real estate investment company Newcastle Investment Corp. (NYSE:NCT) saw an 85% increase in share price, partly due to the increase in real estate valuations as the residential and commercial markets continue to recover. UBS hopped on the Buy bandwagon in December of 2012, joining Credit Suisse and Barclays as bulls regarding NCT. Not to be ignored, Newcastle’s excellent dividend yield of 8.3% provides investors another reason to jump in. Malcolm Fairbairn of Ascend Capital has done just that, with almost 3mm shares. Check out what else he holds here.

Payment transaction experts FleetCor Technologies, Inc. (NYSE:FLT) was another big winner for Legg Mason, beating the S&P 500 by more than fifty percentage points, helping the stock reach new 52-week highs at its current levels. Hound Partners initiated an almost $100mm position as indicated by their last 13F filing; see what else manager Jonathan Auerbach holds here. Sell-side analysts see the rise as “too much, too quick”, and are expecting the price to drop by a few percentage points to be more in line with valuations. FLT reports earnings on February 7th, so potential investors should be wary as the announcement is right around the corner.

Continue reading to see Miller’s other hot small cap plays.

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

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

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!