Madison Street Partners’ Top Q4 Stock Picks Headed by Media Stocks

Founded in 2004, Steven Owsley‘s Madison Street Partners focuses on undervalued or overlooked companies primarily in the small and mid-cap space. The firm currently has a public equity portfolio with a market value of $26.39 million based on its latest 13F filing. About 56% of this value is invested in the consumer discretionary sector with another 32% being devoted to the technology sector. In this article we’ll take a look at the fund’s top equity picks heading into the fourth quarter and see if there may be any hidden gems contained therein.

In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Insider Monkey looks at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge, not because they are not good at picking stocks on the long side of their portfolios. Hedge funds did in fact manage to outperform the market on the long side of their portfolios. The 15 most popular small-cap stocks among hedge funds has returned 102% since the end of August 2012, beating the S&P 500 Index by 53 percentage points (see the details here).

#5 Visa Inc (NYSE:V)

 – Shares held (as of September 30): 36,927

 – Total Value (as of September 30): $2.57 million

During the third trimester, Madison Street significantly slashed its holding in payments technology company Visa Inc (NYSE:V), by about 49%. The sell-off appears to have been ill-timed, at least short-term, as the stock has surged by nearly 15% since the end of September, pushing its year-to-date gains to nearly 21%. The 57-year-old company’s twelve-month trailing profit margin of 65% is 3.8-times larger than the average large-cap stock. Among the over 700 hedge funds that we track, Ken Fisher‘s Fisher Asset Management is the largest stockholder of Visa Inc (NYSE:V), holding about 14.63 million shares valued at $1.02 billion.

#4 Berkshire Hathaway Inc. (NYSE:BRK.B)

 – Shares held (as of September 30): 23,314

 – Total Value (as of September 30): $3.04 million

Madison Street added about 3,500 shares to its Berkshire Hathaway Inc. (NYSE:BRK.B) holding during the July-to-September quarter. The $334.34 billion holding company’s stock has fallen by more than 11% this year in a rare poor performance. The stock might be headed even lower from the standpoint of technical indicators, as it recently crossed its 50-day moving average in a bearish manner. In its financial results for the third quarter, Berkshire Hathaway reported EPS of $2,769, which beat estimates by $110. The hedge funds within our database were generally bullish on Berkshire Hathaway Inc. (NYSE:BRK.B) during the September quarter. Even though the total number of firms with investments in the company decreased to 69 from 71, the aggregate worth of their holdings increased to $19.44 billion from $18.77 billion despite a more than 5% decline in the stock. The Bill & Melinda Gates Foundation Trust, which is managed by Michael Larson, heads that list of shareholders, as it owns about 79.38 million shares of Berkshire Hathaway Inc. (NYSE:BRK.B), the majority of which were donated to the Trust by Warren Buffett.

 

#3 Apple Inc. (NASDAQ:AAPL)

 – Shares held (as of September 30): 34,675

 – Total Value (as of September 30): $3.83 million

After a 32% reduction, Madison Street’s stake in Cupertino-based tech giant Apple Inc. (NASDAQ:AAPL) represented about 14.5% of its equity portfolio. So far this year Apple Inc.’s stock has appreciated by over 7%. The technology innovator was planning to offer a live Internet-based television service with about 14 channels for a monthly subscription in the $30-to-$40 range. However, the plan has been shelved as an agreement couldn’t be reached with media companies, who wanted a larger piece of the pie than Apple was willing to offer. On the other hand, Apple TV is scheduled to be updated early next year. Famous activist investor Carl Icahn of Icahn Capital LP is the largest stockholder of Apple Inc. (NASDAQ:AAPL) within our database, holding more than 52.76 million shares.

#2 Liberty Global plc – Class C Ordinary Shares (NASDAQ:LBTYK)

 – Shares held (as of September 30): 140,648

 – Total Value (as of September 30): $5.77 million

Madison Street reduced its Liberty Global plc – Class C Ordinary Shares (NASDAQ:LBTYK) holding by 43% during the July-to-September quarter. Shares of the $24.38 billion media company have fallen by over 16% this year. However, the company’s financial results for the third quarter show a promising future for it as it continues to shift its focus away from television and towards the broadband and telephony segments. This trend is vital for Liberty if it’s to thrive in a cord-cutting environment, which has caused deep cuts to the top lines of many North American media companies. The broadband segment was the leading growth segment for the company in the quarter, with 222,000 net additions, followed by telephony, which added a net 159,100 customers. Boykin Curry‘s Eagle Capital Management owns over 30.31 million shares of Liberty Global plc – Class C Ordinary Shares (NASDAQ:LBTYK).

#1 Liberty Media Corp (NASDAQ:LMCK)

 – Shares held (as of September 30): 189,109

 – Total Value (as of September 30): $6.52 million

After a 17% hike during the third trimester, Madison Street’s holding of Liberty Media Corp (NASDAQ:LMCK) shares represented 24.7% of the fund’s portfolio. The stock has risen by almost 10% during the last 12 months, compared to a 7.85% average gain posted by the TV Broadcasting industry. Aforementioned investor Warren Buffett of Berkshire Hathaway is the largest stockholder of Liberty Media Corp (NASDAQ:LMCK) among the investors that we track, as it holds about 15.39 million shares of the company.

Disclosure: None