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 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

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways 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

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

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!