Longhorn Capital Loves Wal-Mart, Campbell, and GEO Group

Wal-Mart (WMT), Longhorn CapitalKris Kristynik and Longhorn Capital currently have a large portion of their capital allocated to ETFs – approximately 91% – but Kristynik does have a select group of stocks that he believes will outperform. Longhorn Capital manages a relatively small portfolio when compared with the other hedge funds we track, and the firm also keeps a relatively small number of holdings; currently only 16 according to Kristynik’s 13F filing through the end of June. Below are Longhorn’s top five stock holdings.

The GEO Group, Inc. (NYSE:GEO) offers government-outsourced services specializing in the management of correctional, detention, mental health, residential treatment, and re-entry facilities across the globe. GEO is Longhorn’s single largest stock holding and represented 1.49% of the firm’s portfolio at the end of second quarter. GEO is currently underserved by the hedge fund community, and Kristynik’s nimble firm was able to double its stake in GEO during the first quarter of 2011. Since this time, GEO’s stock price has remained relatively flat, having fallen to below $17 at the end of 2011, and since rebounding to almost $28. So far this year, Longhorn’s peers Matt Sirovich and Jeremy Mindich at Scopia Capital increased their GEO ownership by 8% in the first quarter, and 11% in the second quarter. GEO has shown positive signs of growth, with second quarter year-to-date numbers showing increased revenues of 5% year-over-year to $814 million, and net income that is up 3% to $38 million. The company also has a 2.86% dividend yield.

The Travelers Companies, Inc. (NYSE:TRV) is a provider of auto, home and business property casualty insurance. The company has a large fund backer in Mason Hawkins and Southeastern Asset Management, who owns about 5.2% of the company, which is about 5.5% of Southeastern’s total portfolio. Travelers’ stock price was beaten down in the first quarter due to poor earnings and bad weather, but many funds took this opportunity to increase their holdings, with Mason Hawkins adding 22% and Israel Englander taking a stake in the company. The company increased its dividend by 12% in the second quarter and currently yields 2.7%.

Campbell Soup Company (NYSE:CPB) manufactures and markets consumer food products. The company has attracted little to no hedge fund money (see all hedge funds’ holding Campbell here) and insider sentiment is in the red, with no recent insider purchases, and three insiders selling their shares around the $35 mark earlier this month. Moreover, Kristynik unloaded 50% of his position in Campbell during the second quarter. However, we do believe there is hidden value in Campbell that that market may be over looking. The company’s strategy for improving its revenue streams may take time, but we believe that it is currently undervalued when compared to peers.

Wal-Mart Stores, Inc. (NYSE:WMT) is the world’s largest retailer. The company operates in three segments – Wal-Mart Stores (about 60% of revenue), Sam’s Club (about 12% of revenue), and International (about 28% of revenue). Warren Buffet remains the top fund manager in Wal-Mart measured by capital amount, close to $3.3 billion in the second quarter, as well as having increased his stake 20% during the first quarter. Wal-Mart represents 4.4% of the Berkshire portfolio. There are also other key managers who have stakes in Wal-Mart that make up greater than 4% of their portfolios, including Boykin Curry and George Soros. For the company’s second quarter results, it beat on EPS and had positive same store sales increases. Comparable sales were up 2.2% at Wal-Mart and over 4% at Sam’s Club for the same quarter last year. Longhorn Capital currently owns $3.5 million worth of the stock.

Aon PLC (NYSE:AON) is a global provider of insurance brokerage services, insurance products, and risk and insurance advice, as well as other consulting services. The company has excelled since its October 2012 acquisition of Hewitt Associates, Inc., with its stock price up over 25% since the acquisition. The company increased revenues by 12% in 2010 and 33% in 2011. Revenue is expected to rise 4.5% in 2012. Both Kris Kristynik and Mason Hawkins believe in the insurance sector. Aon is another key holding of Hawkins’ and Southeastern’s portfolio, coming in as his sixth largest holding at 5.34%; see all of Southeastern’s holdings here. Kristynik holds a little over $3 million in the stock, good for 0.93% of his portfolio. From an analytical standpoint, it appears that AON is still in growth mode, expanding into emerging markets while exploring cross-selling opportunities and products afforded them via the Hewitt acquisition. Other fund managers have also taken notice of this, and of the over 400 hedge funds we track, 13 have over 3% of their portfolios concentrated in AON.

While hedge fund sentiment should not serve as an end-all-be-all for individual investors, it can provide a starting point for further research. In fact, empirical studies have shown that there are some hedge fund-centric strategies that can be utilized to generate excess returns of up to 7% a year. Continue reading about this phenomenon here.

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