In this article, we will discuss 10 stock picks of Nathaniel August’s Mangrove Partners.
Nathaniel August founded Mangrove Partners in April 2010 and now serves as the President of the New York-based hedge fund. After completing his bachelor’s degree from the esteemed Brown University, Mr. August started as an analyst at Goldman Sachs and worked there for nearly two years between July 2001 and May 2003.
After that, he switched over to K Capital Partners as an analyst from June 2003 to January 2006. Brahman Capital was his next destination, where he worked as a Senior Analyst from March 2006 to September 2008. Following that, his last job before founding Mangrove Partners was serving as a Director at White Eagle Partners between December 2008 and January 2010.
Investment Strategy
Mangrove Partners believes that the daily increase or decrease in stock prices and valuations do not represent a true picture of the market due to the emotions of the market participants. Furthermore, the market ignores and undervalues businesses that are small in size, illiquid in nature, and not covered extensively by brokerage firms.
Mangrove Partners drives on an opportunistic and value-oriented strategy. The hedge fund emphasizes pre-identified circumstances where there is a higher probability of finding an opportunity to invest. The hedge fund seeks to reap benefits from developments related to forced selling and company-specific news with a focus on legal complexity or smaller issues. The hedge fund also looks for investments where uncertainty or complexity of an event is in play; there is a likelihood of bankruptcy, or the growth of an organization has reached its peak or is in decline.
The portfolio value of Mangrove Partners stands at $1.12 billion as of Q2 2021 and includes notable companies like Royal Dutch Shell plc (NYSE:RDS-A), Seelos Therapeutics Inc. (NASDAQ:SEEL), and Shaw Communications Inc. (NYSE:SJR).
Nathaniel August of Mangrove Partners
Our Methodology
In this article, we will be discussing the top 10 stock picks of Nathaniel August’s Mangrove Partners. These stocks have been picked from the second quarter portfolio of Nathaniel August’s Mangrove Partners.
10 Stock Picks of Nathaniel August’s Mangrove Partners
10. Carnival Corporation & plc (NYSE:CUK)
Mangrove Partners’ Stake Value: $9,226,000
Percentage of Mangrove Partners’ 13F Portfolio: 0.94%
Number of Hedge Fund Investors: 10
Carnival Corporation & plc (NYSE:CUK) is the world’s biggest cruise company based out of Miami, Florida. Mangrove Partners held 396,474 shares in Carnival Corporation & plc (NYSE:CUK) at the end of Q2 2021, worth $9.23 million.
The Anglo-American company has been under immense pressure during the COVID-19 pandemic as its operations were completely shut for two quarters and on the fringes of bankruptcy. However, the global cruise industry is expected to stage a comeback in 2022, and Carnival Corporation & plc (NYSE:CUK) is even taking bookings for the 2023 holiday season. As of October 2021, Carnival Corporation & plc (NYSE:CUK) has restarted 50% of its fleet through its eight leading cruising brands and plans to reach 65% capacity by the end of the year.
9. Companhia Energética de Minas Gerais (NYSE:CIG)
Mangrove Partners’ Stake Value: $11,095,000
Percentage of Mangrove Partners’ 13F Portfolio: 1.14%
Number of Hedge Fund Investors: 15
Companhia Energética de Minas Gerais (NYSE:CIG) is the sixth biggest electricity generation, transmission, and distribution company in Brazil. The Belo Horizonte, Minas Gerais-based company, is responsible for gas distribution, telecommunications services, and the provision of energy solutions. Companhia Energética de Minas Gerais (NYSE:CIG) has a production capacity of 6,086 megawatts through its 89 plants. Furthermore, the company has a transmission grid of 10,000 km.
Companhia Energética de Minas Gerais (NYSE:CIG) is working on spinning off 25% of Minas Gerais Gas Company (Gasmig), CEMIG’s natural gas distribution business, through an IPO. Any such activity will be beneficial for Companhia Energética de Minas Gerais (NYSE:CIG) as the company can use the IPO proceeds to lower its debt and also expand its business. However, the potential upside depends upon the recovery of the global economy from the coronavirus and the exchange fluctuation between the US Dollar and the Brazilian Real.
8. Dell Technologies Inc. (NYSE:DELL)
Mangrove Partners’ Stake Value: $11,136,000
Percentage of Mangrove Partners’ 13F Portfolio: 1.14%
Number of Hedge Fund Investors: 62
Dell Technologies Inc. (NYSE:DELL) is another organization on the list that is undergoing a corporate restructuring following the VMware, Inc. (NYSE:VMW) spinoff. The Round Rock, Texas-based tech giant, offloaded 81% of its stake in VMware. This will form an independent software company with a market capitalization of $64 billion.
On November 2, Tim Long at Barclays issued an Equal Weight rating on Dell Technologies Inc. (NYSE:DELL) with a price target of $59. The analyst believes that after the spinoff, Dell rose with a simplified structure and improved financials. The stock price of Dell Technologies Inc. (NYSE:DELL) has risen by over 90% YTD.
Third Point Management discussed its stance on Dell Technologies Inc. (NYSE:DELL) in its Q3 2021 investor letter. Here’s what the investment management firm said:
“Michael Dell has created substantial value for shareholders since re-listing the company several years ago. Earlier this year, Dell Technologies announced that it would be spinning its $50 billion stake in VMWare, which we believe will unlock the underappreciated value of the Dell server and PC businesses. Dell’s best attribute has been strong free cash flow generation, which the company has used to de-lever and create significant latent value for equity holders. Looking ahead, we believe this core Dell business, which still trades at a discount to its hardware peer group, should instead command a premium multiple thanks to its leading market share, profitability, and impressive execution. There are few large cap companies which possess a nearly 10% FCF yield, 2.5% dividend yield and 1.5x leverage ratio; Dell is one of them.”
7. Xilinx, Inc. (NASDAQ:XLXN)
Mangrove Partners’ Stake Value: $11,291,000
Percentage of Mangrove Partners’ 13F Portfolio: 1.16%
Number of Hedge Fund Investors: 59
Xilinx, Inc. (NASDAQ:XLNX) is the inventor and manufacturer of field-programmable gate array (FPGA), other programmable logic devices and offers a dynamic processing technology. In October 2020, Advance Micro Devices, Inc. (NASDAQ:AMD) announced that it would acquire the San Jose, California-based semiconductor company for $35 billion to expand its product portfolio.
Mangrove Partners held 78,060 shares in Xilinx, Inc. (NASDAQ:XLNX), worth nearly $11.3 million at the end of the second quarter of 2021. Overall, 59 hedge funds held a stake in Xilinx, Inc. (NASDAQ:XLNX), up from 57 in the first quarter.
6. Change Healthcare Inc. (NASDAQ:CHNG)
Mangrove Partners’ Stake Value: $16,209,000
Percentage of Mangrove Partners’ 13F Portfolio: 1.66%
Number of Hedge Fund Investors: 51
Change Healthcare Inc. (NASDAQ:CHNG) is a provider of healthcare technology through its Change Healthcare Platform. The company provides ways to get the best clinical, financial, and administrative outcomes through data and solution-driven analytics. The company was acquired by Optum, a UnitedHealth Group Incorporated’s (NYSE:UNH) subsidiary, for $8 billion or $25.75 per share.
Although the deal was expected to be closed by the second half of 2021, delays due to scrutiny by the DoJ have resulted in Change Healthcare Inc. (NASDAQ:CHNG) expecting to close the merger by February 22, 2022.
Out of the 873 hedge funds being tracked by Insider Monkey, 51 held a stake worth $1.84 billion in Change Healthcare Inc. (NASDAQ:CHNG) at the end of Q2 2021, compared to 56 hedge funds in the previous quarter.
In addition to Change Healthcare Inc. (NASDAQ:CHNG), Mangrove Partners also held stakes in companies like Royal Dutch Shell plc (NYSE:RDS-A), Seelos Therapeutics Inc. (NASDAQ:SEEL), and Shaw Communications Inc. (NYSE:SJR) at the end of Q2 2021.
5. Shaw Communications Inc. (NYSE:SJR)
Mangrove Partners’ Stake Value: $18,471,000
Percentage of Mangrove Partners’ 13F Portfolio: 1.90%
Number of Hedge Fund Investors: 23
Shaw Communication Inc. (NYSE:SJR) is one of the biggest Canadian telecom companies with an emphasis on the western parts of the company and a strong presence in Alberta. The Edmonton-based company is in the middle of a takeover by Rogers Communications Inc for $16.16 billion. The price offered by Rogers Communication assumed a significant premium. The buyout has been approved by Shaw Communication Inc.’s (NYSE:SJR) shareholders but is pending the final go-ahead from the concerned regulatory authorities.
On November 8, RBC Capital upgraded Shaw Communication Inc. (NYSE:SJR) to Outperform from Sector Perform with a price target of C$40.50.
4. Coherent, Inc. (NASDAQ:COHR)
Mangrove Partners’ Stake Value: $19,691,000
Percentage of Mangrove Partners’ 13F Portfolio: 2.02%
Number of Hedge Fund Investors: 43
Coherent, Inc. (NASDAQ:COHR) is a producer of lasers and photonics technology. The Silicon Valley-based company agreed to be acquired by II-VI Incorporated (NASDAQ:IIVI) in March 2021.
Nathaniel August’s Mangrove Partners held 74,493 shares in Coherent, Inc. (NASDAQ:COHR) at the end of the second quarter of 2021, worth nearly $19.7 million. Overall, 43 hedge funds reported owning a stake in Coherent, Inc. (NASDAQ:COHR) at the end of Q2, up from 41 in the first quarter.
In October, Stifel resumed coverage on Coherent, Inc. (NASDAQ:COHR) with a Hold rating and a price target of $270, underlining the II-VI (IIVI) acquisition price. Analyst Patrick Ho noted “synergies in both revenue and cost from this deal.”
Carillon Tower Advisers discussed its stance on Coherent, Inc. (NASDAQ:COHR) in its Q1 2021 investor letter. Here’s what the investment management firm said:
“Coherent is an international company that designs and manufactures a variety of laser-based photonic products, and is also a key equipment supplier in the production of organic light emitting diode (OLED) screens. The firm’s shares saw a sizable gain after it was announced in mid-January that Coherent would be acquired for a notable premium. After a contentious bidding process between two rival firms drove the share price higher with each successive bid, Coherent ultimately agreed to terms in a cash and stock deal.”
3. Magnachip Semiconductor Corporation (NYSE:MX)
Mangrove Partners’ Stake Value: $23,675,000
Percentage of Mangrove Partners’ 13F Portfolio: 2.43%
Number of Hedge Fund Investors: 35
Magnachip Semiconductor Corporation (NYSE:MX) is a South Korean developer and producer of analog and mixed-signal semiconductor platform solutions for consumer and industrial products. Magnachip Semiconductor Corporation (NYSE:MX) owns more than 1,200 registered patents.
Magnachip Semiconductor Corporation (NYSE:MX) reported an EPS of $0.42 for Q3 2021, beating the analysts’ estimate by $0.22.
2. Macquarie Infrastructure Holdings, LLC (NYSE:MIC)
Mangrove Partners’ Stake Value: $32,230,000
Percentage of Mangrove Partners’ 13F Portfolio: 3.31%
Number of Hedge Fund Investors: 34
Macquarie Infrastructure Holdings, LLC (NYSE:MIC) is a limited liability company treated as a partnership for tax benefit purposes. Earlier in 2021, the New York-based diversified infrastructure company had announced to dispose of various assets and reorganize itself. In the second quarter, Mangrove Partners held 842,164 shares in Macquarie Infrastructure Holdings, LLC (NYSE:MIC), worth $32.2 million.
1. Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH)
Mangrove Partners’ Stake Value: $53,759,000
Percentage of Mangrove Partners’ 13F Portfolio: 5.53%
Number of Hedge Fund Investors: 36
Mangrove Partners’ highest stake is in Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH). The Delaware-based company is listed as a special purpose acquisition company (SPAC) backed by famous activist investor and hedge fund manager, Bill Ackman.
Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH) is a creative SPAC, in the sense that stockholders who do not opt to redeem their investment as part of the SPAC transaction will receive extra warrants and down the line, they will receive more warrants from anyone else who redeems his warrant.
The SPAC went forward with the listing of the Universal Music Group (UMG) but the deal collapsed due to regulatory challenges. Following this, a lawsuit was brought up in August 2021 against Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH) for acting as an investment firm. The lawsuit was an attack on all the companies in the SPAC universe and is not only limited to Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH).
In response, Bill Ackman sent out a letter to the shareholders of Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH) stating that he will give back $20 per share to the shareholders of PSTH. Furthermore, a warrant will also be given out, which can be exercised when the SPAC is making an acquisition.
Alphyn Capital Management mentioned Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH) in its Q3 2021 investment letter. Here’s what the firm said:
“PSTH is a high-profile SPAC created by noted hedge fund investor Bill Ackman. I initiated a position soon after the company announced a deal, since abandoned, to buy a 10% stake in Universal Music Group ahead of its spinout from parent holding company Bollore. PSTH had been widely expected to pursue a marquee deal with some trophy tech company, such as Bloomberg L.P. or Stripe, the payments company, valued at $95bn in April, and the shares traded at a 60% premium during the SPAC frenzy of the early part of the year. Instead, PSTH announced a complex, multi-part transaction for an old-school music business, and we were able to purchase shares at a small premium to NAV. PSTH intended to buy 10% of UMG for $4bn and spin this into a separately traded company listed in Europe, creating a tracking stock that presumably would have merged into UMG at some future point. PSTH “remainco” would still have access to approximately $3bn to pursue another deal. Finally, PSTH shareholders would be given 5-year warrants to a new company called a “SPARC,” which would seek a 3rd acquisition target.
I believed PSTH’s components were worth more than the approximately $21.80 a share that PSTH traded for at the time. More importantly, UMG is an attractive asset with a 31% share of the global music market, the largest operator in a 3-way oligopoly with Sony Music and Warner Music. Streaming has transformed music into a growth industry, as companies like Apple, Amazon, Spotify, and TikTok have invested significant sums in building global music distribution platforms. UMG earns attractive high-margin royalties, and its extensive, irreplaceable back catalog of some of the most popular songs globally, valued as much as $50bn, positions it well within this ecosystem.
Unfortunately, the SEC did not approve the deal, and a subsequent shareholder lawsuit has further complicated matters. The net result is that PSTH abandoned the UMG deal and now wants to return cash to shareholders at $20/share and still issue SPARC warrants. Thus, assuming PSTH gets approval for its latest plan, we would receive most of our investment back and retain a 5-year option on a future deal, which is not a bad consolation prize.”
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Disclose. None. 10 Stock Picks of Nathaniel August’s Mangrove Partners is originally published on Insider Monkey.
