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
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 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

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!