Karsch Capital Management recently filed its 13F for the second quarter of 2012 with the SEC, allowing reviewers the chance to see a number of the fund’s equity positions. Express Scripts (NASDAQ:ESRX), CVS Caremark (NYSE:CVS), and SLM Corp (NYSE:SLM) are among Michael Karsch's top stock picks. Much of the fund’s strategy had been discussed on a recent conference call the fund had held to discuss results for the first quarter, helping Insider Monkey look at its holdings and identify investment themes that are being played through Karsch’s large positions. Here are some themes that we see in their second quarter 13F:
Express Scripts merger. Karsch continued its strategy of investing in the changing pharmacy benefit management industry. Express Scripts (NASDAQ:ESRX) is set to gain synergies through its merger with Medco Solutions, which in the first quarter had helped it make it onto our list of the ten most popular healthcare stocks among hedge funds. However, as noted in the fund’s Q1 conference call, Karsch also sees the potential for CVS Caremark (NYSE:CVS) to benefit both from consolidation of the pharmacy benefit management industry. During the second quarter the fund slightly reduced its stake in Express Scripts but increased its position in CVS.
Cash to shareholders. Another factor that was mentioned on the conference call as something that the fund looks for is the returning of cash to shareholders, generally through repurchases of shares. Two of the companies that were mentioned in the call on this point were Viacom (NASDAQ:VIA.B) and SLM (NASDAQ:SLM), and over the course of the second quarter Karsch expanded these positions. The fund closed June with about 3 million shares of Viacom, up from 2.2 million shares three months earlier, and its 2.8 million share position in SLM became 4.4 million shares. These companies don’t particularly have much in common- Viacom being a mega media conglomerate and SLM managing education loans- but they do have a good record of repurchases and plenty of cash on hand. SLM is also cheap on a value basis, with a trailing P/E of 10, a forward P/E of 7, and a 3.1% dividend yield.
Tyco. Karsch more than doubled its position in Tyco (NYSE:TYC), bringing the fund’s position from 1 million to 2.6 million shares. According to the 13F filing, it is now the second largest position in the portfolio by market value. The security and fire protection systems company has seen earnings fall in its most recent quarter compared to the same period in the previous year. However, sell-side analysts believe that the stock will recover and deliver growth next year: it trades at a multiple of 14 times 2013 earnings, and 20 times trailing earnings.
eBay. We already covered Karsch's interest in eBay last month, before we knew that the fund had been so interested in the stock that it had increased its position from 1 million to 1.7 million shares over the course of the second quarter. eBay (NASDAQ:EBAY) has been doing particularly well in its Payments segment, which includes the Paypal business, as it has seen good growth in revenue and earnings. However the company trades at 16 times trailing earnings- not sufficient enough to recommend the stock on a purely value basis, but there is a good deal of industry related potential.
There weren’t a lot of surprises in Karsch’s filing. The fund stuck to its guns on its bullish position in eBay (NASDAQ:EBAY) and on its tactics of engaging with pharmacy benefit management companies and seeking out companies looking to return cash to shareholders. Investors can therefore pick and choose which (if any) of these themes it makes sense to copy and then pursue Karsch’s own choice of instrument accordingly.