Many hedge funds have been filing their 13Fs for the fourth quarter of 2013 lately. In these forms, they disclose most of their long equity positions as of the end of December. Although the portfolio information is a few weeks old, there are still a few ways for investors to use it.
We have found, for example, that the most popular small cap stocks among hedge funds outperformed the market by 18 percentage points even though we started measuring the returns a couple of weeks after 13Fs have been made public. It can also be productive to treat individual 13Fs as free recommendations from fund managers- not necessarily to be followed, but to be considered briefly and then researched further if they seem appealing.
In this article, I will briefly look into Michael Messner‘s Seminole Capital (Investment Mgmt)´s equity portfolio. These hedge fund´s holdings -worth more than $2 billion- are mainly oriented towards technology and financial companies.
Prepare for Landing
Seminole has placed its largest bet on The Boeing Company (NYSE:BA), a $91 billion market cap designer, developer, manufacturer, vendor and servicer of commercial jetliners, military aircrafts, satellites, missile defense systems, human space flight systems and launch systems and services. Mr. Messner’s fund owned 1.02 million shares at the end of last year (down from 1.37 million in the previous quarter), valued at roughly $139.03 million –which comprises about 6.8% of its portfolio.
This investment certainly makes sense, since the company is particularly positioned to continue to boast profitability (especially given a $441 billion backlog, about 5 times estimated 2014 sales, which provide strong revenue visibility). In addition, The Boeing Company (NYSE:BA) offers one of the widest returns on equity in the industry, and pays out 2.37% of the current stock price in the form of quarterly dividends.
On the other hand, the stock has been quite beaten up over the past few days (price is down by more than 10% since Jan. 28th) and growth projections amongst analysts are not so encouraging -especially due to Lockheed Martin Corporation (NYSE:LMT)’s ascent in the industry and the Sequestration, which limits the budget of the U.S. Department of Defense. This might have motivated Messner’s retreat from The Boeing Company (NYSE:BA).
Moreover, Seminole cut its exposure to another behemoth in the Aerospace industry: Delta Air Lines, Inc. (NYSE:DAL). This was the fund’s second largest holding by the end of Q3. However, it now occupies the fourth place in Messner’s list. Over Q4, the fund sold more than 1 million shares, and now owns 3,22 million, worth more than $88.41 million.
Mr. Messner must be seeing something in the Aerospace industry that most analysts can’t, since mean recommendations for both companies are close to a “strong buy.” Moreover, it is difficult to find the reason behind Seminole’s sale of Air Lines, Inc. (NYSE:DAL)’s stock, since the company boasts above average margins and returns (with a return on equity of 4,644%), pays out dividends, and trades at 12.2 x P/E, almost half the industry average valuation.
Shifting Towards Technology
As Seminole slowly moves away from the Aerospace industry, it is getting closer to the Technology segment. The fund started a huge position in Apple Inc. (NASDAQ:AAPL). Holding just 240,200 shares, this stake still comprises 6.66% of its equity portfolio (the second largest bet), since it is valued at $134.76 million.
Other interesting new buys at the tech segment are Google Inc (NASDAQ:GOOG), of which Seminole acquired 61,678 shares that represent 3.4% of its portfolio; and Microsoft Corporation (NASDAQ:MSFT) and Intel Corporation (NASDAQ:INTC), which –together- stand for almost 4% of the fund’s total holdings.
A Diversified Portfolio
Finally, we would like to highlight two other relevant moves. First off, that of Tyson Foods, Inc. (NYSE:TSN), a food producer and distributor of which Seminole owned 3.38 million shares by the end of Q4, up by around 150% over the quarter. The other interesting case is that of Royal Dutch Shell plc (ADR) (NYSE:RDS.A), the Dutch integrated oil & gas company, to which Seminole increased its exposure by 35%, and now holds over 1.21 million shares, worth more than $86.5 million.
The aforementioned companies occupy the third and fifth place in Seminole’s portfolio, respectively.
Disclosure: Javier Hasse holds no position in any stocks mentioned.