Tim Mullen’s Swift Run Capital Is Betting On These Stocks

After each quarter, hedge funds and other major investors disclose many of their long equity positions with the U.S. Securities and Exchange Commission. As part of our investment strategies research, we track hundreds of these 13F filings. We have come to realize that the most popular small-cap stocks among hedge funds generate an average return of 18 percent per year (check out the details on our strategy here). Our model portfolio, which sticks to this approach, outperformed the S&P 500 by 29 percentage points in its first year, having returned 47.6 percent. Following the end of the fourth quarter of 2013, we have been closely following 13F filings in order to find the best investment options for you.

On February 3rd, Tim Mullen’s Swift Run Capital filed its first 13F Form. In the filing, the fund declared holding long positions in, at least, 49 publicly traded companies. In this article we will take a look at Swift Run’s main holdings as of Dec. 31st 2013, picking the largest positions in terms of value.

First on our list is Hess Corp. (NYSE:HES), a large-cap global integrated energy company of which  Swift Run owns 186,355 shares -valued at roughly $13.8 million. This stock accounts for approximately 12% of the total value of its equity portfolio. In addition, other top hedge funds also seem to feel bullish about Hess Corp. (NYSE:HES). For instance, Paul Singer’s Elliott Management –the company’s largest hedge fund bull – last reported increasing its stakes by 3% (over 2013’s Q2), to more than 17 million shares –which accounted for more than 24% of its Q3 equity portfolio.

Hess Corp. (NYSE:HES)

On the contrary, opinion in relation to Hess Corp. (NYSE:HES) among analysts is quite divided. About half of them recommend buying this stock, while the other half, recommends holding. Moreover, the company was recently downgraded by Mizuho Research Firm, from a “Buy” to a “Neutral” recommendation. Nonetheless, offering returns that slightly surpass its industry’s average and a valuation just below the industry mean, while paying out dividends of 1.32%, this stock does not look that bad, and could add value to your long-term portfolio.

Another interesting case is that of Newcastle Investment Corp. (NYSE:NCT), a $1.9 billion market cap real estate investment and finance company. Mullen’s fund $9.1 million (1,699,633 shares) stake in this company comprises around 8% of its total Q4 holdings. Furthermore, Mullen is not the only one feeling confident about this stock’s future performance: over Q3, most of the largest hedge fund bulls increased their stakes in the company. The front runner, John Osterweis’ Osterweis Capital Management slightly upped its bets, to 12.6 million shares. James Dondero’s Highland Capital Management did the same, and now holds more than 8 million shares (up 12% from Q2). Other prominent investors that boosted their involvement in Newcastle Investment Corp. (NYSE:NCT) are D E Shaw and Jacob Gottlieb.

Moreover, analysts also seem to like this stock: industry leading margins and returns, paired with a cheap valuation (8.4x P/E vs. an industry mean of 18x), make the stock a buy/strong buy case for most analysts, even though consensus estimates point towards below average EPS growth figures for the next five years.  A mean price target of $6.35 per share implies a 17% upside potential.

The third and seventh places in my list are also occupied by REITs – Colony Financial Inc (NYSE:CLNY) and New Residential Investment Corp (NYSE:NRZ), respectively. These stakes combined are worth more than $15.66 million. Another fund betting on both there REITs is Ken Griffin´s Citadel Investment Group.

Another thing to highlight is the fact that Swift Run holds big stakes in MLPs (what is an MLP?) from several companies, including 145,123 shares of Oaktree Capital Group LLC (NYSE:OAK). For a complete list of Swift Run´s holdings, check out the latest (and only) 13F Form at the SEC website.

 

Disclosure: Javier Hasse holds no position in any stocks mentioned

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