By tracking hedge fund holdings, and observing changes in prices of the stocks they own over time, we can approximate hedge fund performance. Recently we ran the numbers for the third quarter of 2012 and determined which funds we think were doing well at the end of September. Now, our calculations can only be made based on the positions disclosed in funds’ 13F filings. These filings report what the fund owned at the end of the quarter, so any gains or losses it took during the quarter are not included. In addition, we can only track the long positions that a fund took- we cannot include any gains from shorting a stock, which can often be quite substantial; good short selling helped make John Paulson and David Einhorn famous and billionaires.
With that said, based on our analysis Jamie Zimmerman’s Litespeed Management is having a great year. Our estimates are that Litespeed was up about 21% in the first half of the year and another 17% during the third quarter. Read on for a quick look at its top holdings from the end of June or research more stocks the fund owned.
Litespeed’s top pick was Seagate Technology PLC (NASDAQ:STX), owning 1.5 million shares at the beginning of July. Seagate is up 69% so far this year as its revenue and earnings have roared higher; sales at the data storage device and services company were up 57% in the fourth quarter of its fiscal year (which ended in June) from a year earlier, helping power a large increase in earnings. Even after the rise in its stock price, it trades at only 4 times trailing earnings and pays a dividend yield of 4.6%, meaning it could still be considered a value stock. Billionaire David Einhorn’s Greenlight Capital increased its own stake by 60% during the second quarter.
Theravance Inc (NASDAQ:THRX) was another of Zimmerman’s favorite stocks as the fund owned 1.7 million shares according to the 13F. Theravance is a $2.3 billion market cap pharmaceutical company whose products treat conditions such as infections and respiratory diseases. As a development-stage company, it is not expected to have positive earnings this year or next year, but has still risen 16% so far in 2012. The Baupost Group, managed by Seth Klarman, owned 14.6 million shares at the end of the second quarter. We would avoid the stock as we don’t really know when it could start delivering profits.
The fund initiated a position of 2.1 million shares of Avon Products, Inc. (NYSE:AVP) between April and June; during the third quarter of the year Avon’s stock was about flat. Avon pays an impressive 5.6% dividend yield; 2012 was the first year in several years that it did not increase its dividend payments. Its business is not doing well, however: in the second quarter, earnings were down 70% from the second quarter of 2011. Sell-side analysts think it will rebound, with their expectations for earnings growth driving a forward P/E of 16, but we are skeptical.
Macquarie Infrastructure Company LLC (NYSE:MIC), which Litespeed owned about 850,000 shares of at the end of the second quarter, is up 51% this year after seeing a big gain in early August. The company provides services such as fueling to aircraft operators in the U.S., operates marine storage terminals for liquid products, and other lines of business. It’s another attractive income stock, paying a dividend yield of 5.8% at current prices, and trades at 11 times forward earnings estimates as Wall Street analysts expect strong earnings numbers next year here as well. We wouldn’t recommend this stock either.
Zimmerman and her team also liked LyondellBasell Industries NV (NYSE:LYB), a $31 billion market cap chemicals company. Its stock price is up 59% this year; despite a decline in revenue and earnings in the second quarter versus a year earlier, the sensitivity to the broader market (the stock has a beta of 2.6) is likely driving it higher during the current bull market. Its trailing P/E multiple is 15. We think that we might look at it as a potential value stock after it releases its third quarter earnings this week.