Polaris Capital Management’s Top Stock Picks

Polaris Capital Management, founded in 1995, is an international value equity investment firm. It recently reported that it manages over $4 billion from a diversified client base. Polaris’s manager, Bernard Horn, formerly worked at MDT Advisers and holds a master’s degree in management from MIT’s Sloan School. Polaris likes to look at a company’s operating cash flow minus its maintenance capital expenditures in order to determine value. We have gone through the fund’s recent 13F filing, which disclosed some of its equity positions. Review our list of the fund's stock positions or read more about its top five 13F holdings:

Polaris’s largest position, according to the 13F, was Teva Pharmaceutical Industries Ltd (NYSE:TEVA). The fund owned 1.6 million shares of the $35 billion market cap provider of generic and branded pharmaceutical products. Teva offers an intriguing mix of value and growth. In its most recent quarter, revenue increased 19% and earnings increased 50% compared to the same quarter in 2011. Yet the company is actually cheap on a historical basis at 11 times trailing earnings. The sell-side expects some degree of growth to continue, yielding a forward P/E of only 7. The stock also pays a moderate dividend yield of 2.1% and, as a pharmaceutical company, has a beta of only 0.7. We might look at it a bit more in the future.

Andreas Halvorsen

$3.3 billion market cap baby and children’s apparel company Carter’s, Inc. (NYSE:CRI) was another of the fund’s favorite stocks, as it owned 1.1 million shares at the end of June. Carter’s, which owns the OshKosh brand, has seen its stock rise 88% over the last year and it reported strong growth last quarter (revenue was 20% higher, and earnings were 64% higher, than the same period last year). The rise in the stock price has left Carter’s with quite a bit of future growth priced in, at trailing and forward P/E multiples of 27 and 17, respectively. Andreas Halvorsen’s Viking Global was a major shareholder at the end of the second quarter.

Polaris reported a position of 1.2 million shares in Infosys Ltd (NASDAQ:INFY), which offers strategy and technology consulting services to business customers. Infosys, which is experiencing moderate growth, has trailing and forward P/E multiples in the teens as the market does not expect much growth at the company in the future. Infosys is down 10% so far this year despite a rising market, and is widely shorted with a short ratio of 16 as of the most recent data.

Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR) is a $1.8 billion market cap biotech company whose primary product, H.P. Acthar Gel, acts as a treatment for multiple sclerosis. Polaris owned about 910,000 shares of the stock at the end of June, unchanged from the beginning of the quarter. Questcor has something of a hidden gem factor going for it: its revenue and earnings last quarter were more than double what they were in the same period in the previous year. The growth is expected to continue, as the stock trades at 14 times trailing earnings, 7 times forward estimates, and a five-year PEG ratio of 0.5. We think investors might want to look more closely at this stock. Healthcare guru Samuel Isaly has a large stake in this biotech company as well.

Finally, the fund’s 13F filing showed a substantial stake (about 690,000 shares) in NextEra Energy, Inc. (NYSE:NEE). Nextera, an electric utility with a strong position in renewable energy to complement its more traditionally fueled power plants, was formerly known as FPL. Billionaire Israel Englander’s Millennium Management more than doubled its own position during the second quarter, and closed June with about 750,000 shares of the company. Nextera, which pays a 3.6% dividend yield, trades at a trailing P/E of 13 and a forward P/E of 14.

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