Alexander Klabin and Doug Silverman’s Senator Investment Group has filed its 13F with the SEC, disclosing many of its long equity positions as of the end of March. We track these filings for a variety of purposes: we have found that they can be a useful source of information for investing strategies (for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and of course filings from individual managers can serve as a source of free initial investment ideas. We have gone through Senator’s most recent 13F. Read on for our quick thoughts on the fund’s five largest holdings and compare them to previous filings.
During the first quarter of 2013, Silverman and Klabin’s team initiated a position of 5.3 million shares in Tempur-Pedic International Inc. (NYSE:TPX). The past few years of price action at Tempur-Pedic International Inc. (NYSE:TPX) have been highly volatile, and so far this year the stock has been on an upswing with a 45% gain year to date. The industry is consolidating with the company’s acquisition of Sealy, though trailing earnings are low compared to the current valuation. John Shapiro’s Chieftain Capital had increased its own stake in Tempur-Pedic International Inc. (NYSE:TPX) by 29% during the fourth quarter of 2012, to a total of 7.5 million shares (see Chieftain’s stock picks).
Senator reported a position of 1.6 million shares in
The fund added to its stake in Danaher Corporation (NYSE:DHR) and closed March with 3.3 million shares in its portfolio. The $43 billion market cap scientific and industrial equipment manufacturer saw a 13% increase in earnings in the first quarter of 2013 versus a year earlier, though revenue was up only 3%.
The market is pricing in moderate growth going forward, with the current price placing the stock at a trailing P/E of 18. It could be interesting, but we’d think that margin-driven earnings growth is less sustainable than that based on higher sales.
Senator owned 5 million shares of oil and gas pipeline and gathering systems company Williams Companies, Inc. (NYSE:WMB) at the beginning of April. It’s another potential income stock, with a dividend yield of 3.7%. However, business has not been good- revenue was down 10% in its most recent quarter compared to the same period in the previous year, and earnings came in 62% lower- so it would be important to investigate how safe those dividend payments are. The earnings multiples are also quite high here.
As a result we’d avoid Williams- there are probably better options out there in the pipeline universe for investors chasing yield. Macquarie is similarly problematic; even with a yield near 5% we’d want to pay at least some attention to where the stock is valued and it doesn’t seem that attractive there. In fact, the rest of Silverman and Klabin’s picks also seem a bit too dependent on future growth for our liking. Danaher comes somewhat close, as that company could be fairly valued if it continued to improve its bottom line at the current pace, but over time we’d expect its earnings growth rate to converge towards its lower revenue growth.
Disclosure: I own no shares of any stocks mentioned in this article.
