Michael Lowenstein and Kensico Capital’s Outstanding Stock Picks

Kensico Capital Management is a Connecticut–based hedge fund that was co-founded by Michael Lowenstein and Thomas Coleman in January 2000. Kensico primarily invests in stocks but they invested in credit default swaps in late 2006 and profited handsomely. Coleman, 45 years old, was employed by Halo Capital Partners as a partner prior to founding Kensico. Prior to Halo Capital, Coleman was the CEO of PTI Holding Inc., a manufacturer of bicycle accessories, between 1990 and 1995.

Kensico was one of the most successful hedge funds since the end of first quarter. The fund’s stock picks had an average return of 4.6% during the past 4 months, vs 2% loss for the SPY. Below is a list of Kensico Capital’s latest major reported trading activities:

According to its latest 13F filing, Kensico Capital held a total of 33 securities in its portfolio, 20 of which comprised more than 94% of the overall portfolio value. Kensico made some really good bets in the first quarter of 2011 and managed to beat the market by nearly 7 percentage points since the end of the first quarter.

Lowenstein trimmed his WebMD holdings by almost 20% in the first quarter of 2011. The stock lost almost 31% in value since March 31. Kensico continued to hold about 2.8 million WBMD shares (about 6.5% of its 13F portfolio) at the end of first quarter. Unlike Lowenstein, Chris Lord’s Criterion Capital was getting bullish about the company and bought 353K shares in the first quarter.

Another good decision taken by Lowenstein was to trim its Flowserve (FLS) shares by 10% during the first quarter. The stock lost almost 20% in value since the end of March. Neverthless, Lowenstein continued to hold 182K shares of FLS in his portfolio. Richard Breeden’s Breeden Capital Management probably regrets that it increased its FLS stake by 62% after seeing the performance of the stock since the end of the first quarter.

Kensico’s best performing stock pick was Southern Union (SUG), where the return was remarkably high at 54%. Lowenstein and Coleman made more than $90 Million from this investment.

Most of Kensico’s stock picks managed to outperform the S&P 500 index since the end of March. Kensico increased its Maiden Holdings stake by 7% and the stock gained 25% in less than four months. Another good bet was Visa, where Kensico enjoyed a double-digit return of 21%. The fund increased its Visa holdings by 14% in the first quarter. Empyrean Capital seemed to have a totally opposite view of the company as it invested more than $150 million in Visa put options. Liberty Media Capital, where more than 9% of the Kensico’s 13F assets are parked, generated an impressive return of 17% since the end of March. Kensico increased its LCAPA holdings by 15% in the first quarter.

A new holding in the portfolio, El Paso, has been another double-digit return generator for Kensico with 12%. There were several hedge funds that are etremely bullish about EP in the first quarter of 2011. Barry Rosenstein’s Jana Partners increased its EP holdings by 330% and had more than $548 million in EP. Dan Loeb’s Third Point bought 11 million new shares of EP and Alec Litowitz’s Magnetar Capital increased its EP holdings by 500%.

Kensico was also extremely bullish about WMB, which happens to be in the same industry as SUG and EP. More than 14% of the aggregate portfolio is invested in WMB and yet, the stock lost 1.4% since the end of March. Many other funds shared the same view and were bullish on WMB. Michael Blitzer’s Kingstown Capital increased its WMB holdings by almost 140%.  Just like in EP, Barry Rosenstein and Dan Loeb were also bullish about WMB and increased their long positions.

Overall, Michael Lowenstein’s Kensico Capital has shown a remarkable performance since the end of the first quarter and generated an overall return of 7%. We believe investors can outperform S&P 500 index by imitating Kensico Capital’s top stock picks.

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