Polaris Capital Management’s Top Stock Picks

Polaris Capital Management has filed its 13F with the SEC. This filing discloses many of the fund’s long positions in publicly traded equities as of the end of September and serves as one of the most common guides for investors who are interested in mimicking a fund’s trades or mining their portfolio for investment ideas. Polaris, which is managed by Bernard Horn, is a value investment firm which has reported about $4 billion under management. Read on for our quick take on Polaris’s top five positions and compare them to previous filings.

The fund increased its stake in Infosys Ltd (NASDAQ:INFY) to 1.6 million shares from 1.2 million three months earlier. Infosys is an India-based business and technology consulting company. The second quarter of its fiscal year ended in September with the company reporting modest increases in revenue and earnings. With the stock down 21% in the last year, it trades at 14 times earnings on either a trailing or a forward basis. We think it could be worth a closer look, but investors should be warned that there is considerable short interest on Infosys as well.

Generics-focused Teva Pharmaceutical Industries Ltd (NYSE:TEVA) was another of Polaris’s top picks with the fund owning 1.7 million shares. Read our analysis of Teva from last month. The company stands to benefit from a number of drugs going off patent in the next several years, as well as a growing recognition that the health care system will have to cut costs (which suggests a possible shift to generics over more expensive branded alternatives). After a third quarter in which sales came in over 10% higher than a year earlier, the stock trades at a trailing P/E of 17 and we think it may be worth revisiting the company.

Andreas Halvorsen

The fund kept its position in Carter’s, Inc. (NYSE:CRI), a $3.2 billion market cap children’s apparel company (it owns the OshKosh brand, for example) about constant at 1.1 million shares. Its stock price is up 52% in the last year, tracking a large increase in earnings. However, the stock is priced for even further growth at trailing and forward P/E multiples of 22 and 16, respectively. Tiger Cub Andreas Halvorsen’s Viking Global had added shares of the stock to its own portfolio during the second quarter. We’re not sure how the outlook for children’s apparel looks, and so would avoid the stock.

Horn and his team held their position in Frontier Communications Corp (NASDAQ:FTR) but the stock is up 18% since the end of June and that vaulted the stock into the top five holdings by market value. Frontier, formerly known as Citizens Communications, is a telecom company which is quite polarizing in the markets. It trades at 45 times trailing earnings as many market players expect strong growth (analyst consensus is also on this side, projecting a forward P/E of 17), but the most recent data shows 23% of the outstanding shares held short. The dividend yield is above 8%, so income investors may want to consider it, but on a value basis we’d say that it’s another one to stay away from.

Polaris also liked Marathon Petroleum Corp (NYSE:MPC), which is involved with refining and marketing petroleum products; it reported owning about 940,000 shares at the end of September. Marathon- not to be confused with oil major Marathon Oil, which spun out the company in the summer of 2011- looks very attractive on a value basis at 8 times trailing earnings, a growing business, and expectations that this growth will continue next year. In fact, Wall Street analysts are so bullish on the company that it carries a five-year PEG ratio of 0.5 even after the stock has been up 54% in the last year. We plan to take a closer look at the company.

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