Top 5 Stocks From This Niche Hedge Fund: SandRidge Energy Inc. (SD), Wyndham Worldwide Corporation (WYN) & More

GNC Holdings Inc (NYSE:GNC )

was one of TPG’s biggest increases, at 190% last quarter, and now makes up the fund’s third largest holding. GNC is the specialty retailer of nutritional products including vitamins and supplements. Soft employment and weak consumer spending have previously put pressure on the industry, but a rebounding economy should help lift the stock. S&P estimates that total consumer spending will advance 2.5% in 2013, up from the 1.9% in 2012.

The real draw to GNC is its industry-leading position, with over 6,000 stores, compared to top peer Vitamin Shoppe, which has only 500. GNC owns only 8% of the $29 billion vitamin market, leaving tons of room to grow (check out why billionaire Steve Cohen is getting nutritious).

The dollar store company Dollar General Corp. (NYSE:DG ). was another big increase for TPG-Axon, at 183% last quarter, and is ranked fourth by holding size in TPG’s portfolio. Dollar General is one of the top discount retailers in the U.S. Last quarter the company posted EPS that was up nicely year over year, with EPS of $0.63, compared to $0.50 for the same quarter last year, on the back of 4.0% higher same-store sales and a 10% rise in total sales.

Dollar General is expected to see same store sale growth of 3.8% in 2013 and add some 550 new stores. While the company expects to generate higher traffic and sales from offering more consumable products, it also plans to increase its health and beauty offerings. The company has not only been great at increasing traffic and growing store count, but also increasing average price per customer. The company has managed to increase sales per square foot from $163 in 2007 to $213 in 2012 (read about all the dollar stores posed for growth).

Spirit Realty Capital Inc (NYSE:SRC ) is TPG’s fifth largest holding after the stock IPO’ed during the fourth quarter of last year; the real estate investment trust was previously backed by TPG-Axon and Macquarie Group as a private company. Spirit is a self-managed real estate investment trust investing in single-tenant real estate in the U.S. The REIT tends to focus on triple net leases for restaurants, retailers, fitness centers, auto dealers and movie theaters.

Over 98% of the company’s assets are free-standing triple-net properties, with the weighted average lease term for the portfolio at over 11 years. However, the REIT pays a mere 0.41% dividend yield, but recent news show that the company plans to merge with Cole Credit Property Trust II. This will give the combined company an interest in over 2,000 properties in 48 states. Although Cole Credit will be the majority owner of the new company with a 56% stake, Spirit management will run the company. This should be a long-term positive for the REIT and allow the combined company to pay a much higher dividend yield.

Don’t be fooled

TPG-Axon has taken an activist role in battling SandRidge Energy Inc. (NYSE:SD ) to rearrange management and hopefully unlock value for shareholders. TPG-Axon has the support of a few heavy hitters in the hedge fund industry backing them, including billionaire Leon Copperman, who bought up 24 million shares during the fourth quarter, and Fairfax Financial now owns 32 million after upping their stake 650% in 4Q. Other big bets hinge on a rebounding economy and consumer spending, including Wyndham Worldwide Corporation (NYSE:WYN ) and GNC. However, TPG-Axon’s bet on Dollar General should perform well despite the economic backdrop. Also, its investment in Spirit will hopefully pay out with higher dividends in the near future.

Top 5 Stocks From This Niche Hedge Fund: SandRidge Energy Inc. (SD), Wyndham Worldwide Corporation (WYN) & More

Published on March 19, 2013 at 5:21 pm by The Motley Fool in Hedge Funds

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