Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Luxor Capital’s Under-the-Radar Picks: AMC Networks Inc (AMCX), Madison Square Garden Co (MSG)

Page 1 of 2

In the stock market universe, small-caps don’t get as much attention from investors, which often leaves them less efficiently priced than their larger peers. As one would reasonably expect, hedge funds seek to take advantage of this, by dedicating their research teams to work on these lesser-known investments.

Interestingly, retail investors can use hedge funds’ top small-caps as a market-beating strategy; our analysis shows 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 since then, until the end of December, this strategy returned 14.3% vs. 2.1% for the S&P 500 index (learn more about our hedge fund small cap strategy).

With this in mind, it’s important to perform a fund-by-fund analysis, and in this article, we’re going to take a look at Christian Leone’s Luxor Capital Group. Leone has an equity portfolio in excess of $2 billion (see the mammoth fund’s entire profile), but let’s just concentrate on Luxor’s top five small-cap holdings. Each stock had a market capitalization between $1 billion and $5 billion at the end of the third quarter, as is consistent with our strategy.

AMC Networks (AMCX)

First up on our list is AMC Networks Inc (NASDAQ:AMCX), which is actually the No. 1 stock pick on Luxor’s entire 13F filing. The entertainment company holds a robust programming portfolio, which includes AMC, WE tv, IFC and independent filmmaker IFC Films. Last year’s snafu with Dish Network (DISH) briefly spooked investors, as the majority of AMC’s revenues are derived from affiliate fees.

Still, since both sides settled their dispute in late October last year, shares of AMCX are up more than 22%. A massive third quarter earnings beat a couple weeks later also had investors feeling cheery. The company identified two key takeaways in their conference call: (1) near-50% viewership growth in the newest seasons of Breaking Bad and The Walking Dead, and (2) increased licensing revenues from content partners like Netflix (NFLX).

It appears that the sell-side is optimistic on AMC’s prospects moving forward; they’re expecting about 20% annual EPS growth over the next half-decade. At a PEG near 1.2, investors aren’t over-hyping this potential, and the company’s focus on quality original programming isn’t going away any time soon.

Luxor Capital’s second favorite small-cap stock is The Madison Square Garden Co (NASDAQ:MSG), sitting at the No. 2 spot in Luxor’s portfolio. Even though there’s no more Linsanity in the Big Apple, MSG seemingly cannot be stopped. The stock has generated a positive return in 9 out of the past 12 months, and is already up over 9% year-to-date. The company’s media segment is the strongest area of MSG’s business, driven by above-average fan interest in the New York Knicks, and the launch of Fuse News.

Wall Street’s average price target on MSG ($48.12) is nearly at parity with the stock’s current market price, and a forward P/E in the upper 20s indicates that investors may be best served by waiting for a more attractive entry point. Interestingly, Mason Hawkins and Southeastern Asset Management hold a position in MSG that rivals Luxor’s (check out Mason Hawkins’ favorite stock picks).

What about the rest of Luxor’s top five?

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

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 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!