Billionaire Thomas Steyer serves as a managing member of Farallon Capital Management, one of the largest hedge funds in the world. Farallon’s fundamental analysis encompasses strategies including pure value, merger arbitrage, and event-driven investments. The fund recently filed its 13F for the third quarter of the year, and by comparing this filing to the one for the second quarter we can see which stocks Steyer and his team added to their portfolio. Read on for our quick take on the five largest new positions that Farallon reported in its 13F portfolio and compare its holdings to those in previous filings.
The fund’s largest new holding was takeover target Nexen Inc. (NYSE:NXY), an oil and gas exploration and production company which is notable for its position in Alberta’s Athabasca oil sands. A number of hedge funds have gotten into this stock, because merger arbitrage offers returns that tend to have a low correlation with the broader market- profits and losses depend solely on whether or not the deal closes (read more about merger arbitrage strategies). In this case there’s a real concern that the deal will be struck down by the Canadian government, as the public is wary of seeing Canadian assets sold to Chinese oil company CNOOC. We’re not certain that the deal will be approved, so we’d avoid investing.
Another new stock pick was $3 billion market cap engineering services company The Shaw Group Inc. (NYSE:SHAW), with Farallon owning 2.2 million shares at the end of September. Shaw is up 85% in the last year, and still trades at 16 times earnings on either a trailing or a forward basis. Cliff Asness’s AQR Capital Management moved heavily into the stock during the third quarter as well (see more of Cliff Asness's stock picks). We think that the company is worth a look, though it doesn’t appear to have been growing its revenues recently and at that pricing we’d like to see at least somewhat better numbers.
Electrical components and protective devices company Cooper Industries plc (NYSE:CBE) was another new long in the portfolio as Steyer and his team bought 1 million shares between July and September. In the third quarter of 2012 Cooper reported that its revenue and net income had risen 8% and 18%, respectively, from their levels in the same period in 2011. The stock is priced for continued growth at 18 times trailing earnings, and our impression is that its industry would be somewhat stable going forward, so we’d need to check to see that it can maintain a double-digit growth rate.
Farallon initiated a position of 1.5 million shares in Check Point Software Technologies Ltd. (NASDAQ:CHKP). Check Point is an IT security company with a market capitalization of $9.4 billion, which places it at P/E multiples in the teens as well. A 17% drop in the stock price in the last year- combined with an earnings increase of 14% between Q3 2011 and last quarter- have placed it at 16 times trailing earnings, with analysts expecting continued growth in 2013. It’s also a stock that might be worth taking a close look at.
It’s a similar story with Moody’s Corporation (NYSE:MCO): it’s a well capitalized stock trading at a trailing P/E of 18, and in its most recent quarter reported 41% earnings growth (off of a 30% rise in revenue) compared to the same period in the previous year. It’s clearly a good stock to buy if it can continue that performance, or even something close to it. Yet here we see fairly high short interest- 9% of the shares outstanding are held short- so there’s clearly disagreement in the market, and as with some of the other companies we’ve discussed here it would be important to review Moody’s in more depth.