Robert Lynch and Aristeia Capital’s Oil & Gas and Financial Picks

Aristeia Capital LLC is a New York based fund run by Robert Henry Lynch. Having previously worked as an analyst for Delaware Bay, Lynch decided to start his own fund in 1997. He graduated magna cum laude from Cornell University, where he also completed an M.B.A. Aristeia Capital a privately owned hedge fund that invests in publicly traded stocks. Lynch employs a combination of quantitative and fundamental analysis to find investment opportunities while focusing on a bottom-up investment strategy, meaning that he focuses more on the company itself, its products and financial stability, rather than on the industry the company operates in. Aristeia Capital also sponsors a credit fund, Aristeia Partners, managed by Anthony Frascella and William Techar, that has approximately $1.5 billion in assets under management.

The recent 13F report submitted by Aristeia Capital signals that Lynch is betting big on oil and gas companies but is also bullish on financial stocks. Let us take a look at some of the most prominent changes in the portfolio of Aristeia.

Oil & Gas Stocks

During the fourth quarter of 2013, one of the biggest changes in the portfolio of Aristeia Capital was the addition of 2.7 million shares of Magnum Hunter Resources Corp (NYSE:MHR), a company that explores and produces oil and natural gas operating in the United States. The fund currently holds a little over 12 million shares reportedly worth $ 87.8 million. The company has a market cap of $1.43 billion and does not pay a dividend. The stock’s current price of $8.39 per share is near its all-time high of $9.27 reached on February 24, 2014. For the third quarter of 2013, Magnum Hunter Resources Corp (NYSE:MHR) posted a 64% increase in revenues to $59.4 million and a loss of $0.36 per diluted share, up from the loss of $0.52 per share reported for the same period in 2012.

Magnum Hunter Resources Corp (NYSE:MHR)

Lynch has also increased by 50% his fund’s stake in Midstates Petroleum Company Inc (NYSE:MPO), a Texas-based oil and gas explorer. Aristeia now holds 4.0 million shares valued at $26.4 million. The stock has been trending sideways for a long time now and is trading at $4.43, close to its all-time low of $4.16. The company has a market cap of $1.87 billion and does not pay a dividend.  Midstates Petroleum is set to announce 2013 fourth quarter financial results on March 5, 2014. For the third quarter, the company posted revenues of $111 million and a loss per share of $0.32.

Another energy stock in the portfolio of Aristeia is Endeavour International Corporation(NYSE:END). During the fourth quarter of 2013, Lynch added 332,667 shares, taking his fund’s stake to 3.7 million shares worth approximately $19.3 million. The company has a market cap of $1.0 billion and does not pay a dividend. The beta of 1.52 makes it a rather volatile stock. The price of $4.98 is close to its all-time low of $2.36. Endeavour International is also set to announce financial results for Q4 of 2013 on March 5, 2014. Analysts estimate revenues of $89.3 million and a loss of $0.33 per share.

Financials

A new presence in the portfolio of Aristeia is Cardtronics, Inc. (NASDAQ:CATM), a company that provides automated financial services to consumers globally. Robert Lynch bought 87,510 shares worth approximately $3.8 million, according to the fund’s 13F report. Cardtronics has a market cap of $1.8 billion and does not pay a dividend. The stock is traded at a trailing Price to Earnings (P/E) ratio of 77.5, far above the industry median of 35.6. For the three months ending December 31, 2013, the company posted revenues of $241 million and earnings per share of $0.31. The street expects revenues of $237 million and earnings per share of $0.47 during the current quarter.

Northstar Realty Finance Corp.(NYSE:NRF) is another financial stock that has made its way into Aristeia’s portfolio during the last quarter of 2013. The fund currently holds 946,357 shares which are valued at $12.7 million. Northstar Realty Finance operates as a real estate investment and asset management company. It has a market cap of $4.8 billion and pays an annual dividend of $1.00, which represents a yield of 6.3%. For the fourth quarter of 2013 the company posted FFO (Funds From Operations) per share of $0.09, up from a loss $0.09 a year earlier.

One surprising move was the closing of Aristeia’s position in General Motors Company (NYSE:GM), a company that has Warren Buffett‘s Berkshire Hathaway and David Einhorn‘s Greenlight Capital among its top holders. Lynch sold all the 635,779 shares previously held, but Aristeia still holds a number of GM warrants. Buffett, on the other hand, has not made any changes to the 40 million GM shares his fund holds, nor has Einhorn.

Disclosure: none.

Recommended reading:

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