5 Stocks Added to Rail-Splitter Capital’s Portfolio in Q1

John Croghan and Richard Fradin‘s Illinois-based Rail-Splitter Capital Management was founded as Splitter Capital Management in 2002. The fund held about $401.72 million worth of U.S equities in its portfolio at the end of March, with the technology sector representing 41% of the value of the portfolio, with healthcare amounting to another 18%. The turnover ratio, which signifies the activity in the portfolio, stood at just 33.33% during the first quarter, which is relatively low. Given that, we decided to take a look at some of the stocks that the fund did find intriguing enough to make a move on during the first quarter, namely the top five additions to Rail-Splitter’s portfolio during the period.

Our research determined that following the small-cap stocks, that hedge funds are collectively bullish on, can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details here).

#5 Infinera Corp. (NASDAQ:INFN)

 – Shares Owned by Rail-Splitter (as of March 31): 472,300

 – Value of Holding (as of March 31): $7.59 Million

The fund’s new stake in Infinera Corp. represented about 1.89% of its portfolio on March 31. Considering that Infinera Corp. (NASDAQ:INFN)’s stock plummeted by more than 26% in April, the move hasn’t worked out well for the fund as of yet. While the optical transport hardware vendor managed to marginally beat bottom-line estimates with its first quarter EPS, it narrowly missed the top-line mark. However, the real source of disappointment was in the company’s soft guidance for the second quarter amid industry-wide weakness. The company guided for second quarter revenue of $250 million-to-$260 million, well below the $272.2 million consensus estimate, while the $0.15-to-$0.19 in EPS that the company predicted for the ongoing quarter also fell short of the $0.22 that analysts were anticipating. Prescott Group Capital Management, led by Phil Frohlich, appears to have been wise to slash its Infinera Corp. (NASDAQ:INFN) holding by 27% during the first three months of the year, to about 76,600 shares valued at $1.23 million.

#4 MarketAxess Holdings Inc. (NASDAQ:MKTX)

 – Shares Owned by Rail-Splitter (as of March 31): 75,600

 – Value of Holding (as of March 31): $9.43 Million

In contrast to Infinera, Rail-Splitter’s addition of MarketAxess Holdings Inc. (NASDAQ:MKTX) to its portfolio has worked out well so far, as shares of the New York-based electronic trading platform have surged by more than 10% on a year-to-date basis are trading just 5% below their 52-week high. MarketAxess Holdings Inc. (NASDAQ:MKTX) marginally missed the top and bottom-line estimates of analysts with its financial results for the first quarter. Revenue shot up by 15.4% on a year-over-year basis to $88.6 million on the back of record electronic bond-trading. The company also witnessed impressive volume growth in its emerging markets, U.S. high-yield, and Eurobond segments amounting to 36%, 45%, and 54%, respectively. Earnings per share also soared by 18.5% compared to the same quarter of last year, to $0.77. Jim Simons‘ renowned quant fund Renaissance Technologies was the largest stockholder of MarketAxess within our database on December 31, as it held more than 189,300 shares.

We go over three more stocks that were added to Rail-Splitter’s portfolio in the first quarter on page two.

#3 Fidelity National Information Services (NYSE:FIS)

 – Shares Owned by Rail-Splitter (as of March 31): 175,100

 – Value of Holding (as of March 31): $11.09 Million

Let’s move on to Fidelity National Information Services, another one of Rail-Splitter’s bets in the financial commodity market operators industry, which has seen average gains of over 12% in the last twelve months. Fidelity National Information Services (NYSE:FIS) posted first quarter earnings of $0.79 per share on revenue of $2.18 billion, beating EPS estimates by $0.04 but missing revenue estimates by $70 million. According to CEO Gary Norcross, the addition of solutions from SunGard’s portfolio, an acquisition that was closed in November of last year, and the consequent synergy attainment significantly expanded the company’s margins. Fidelity National was recently upgraded by Goldman Sachs to ‘Buy’ from ‘Neutral’, and shares of the company are up by 17% this year. Cantillon Capital Management, led by William Von Mueffling, trimmed its Fidelity National Information Services (NYSE:FIS) stake by 5% to 7.75 million shares during the first three months of this year.

#2 Signet Jewelers Ltd. (NYSE:SIG)

 – Shares Owned by Rail-Splitter (as of March 31): 97,160

 – Value of Holding (as of March 31): $12.05 Million

Rail-Splitter’s holding in the $8.55 billion jewelry and watch retailer amassed about 3% of the fund’s portfolio as of March 31. Shares crumbled in the first half of February, losing over 21% in the span of 11 days, which may have provided the entry point Rail-Splitter was looking for. Shares recovered all of those losses by the end of the first quarter however, buoyed by Signet’s bottom-line beat for the fourth quarter of fiscal year 2016 ending January 31, which represented a 19% year-over-year imporvement. Signet Jewelers Ltd. (NYSE:SIG) also provided upbeat guidance for its current fiscal year, and increased its three-year net synergy target associated with the integration of Zale Jewellers. David Keidan‘s Buckingham Capital Management was also bullish on Signet Jewelers Ltd. (NYSE:SIG) during the first quarter, as it hiked its holding by 11% to about 239,000 shares.

#1 American Tower Corp (NYSE:AMT)

 – Shares Owned by Rail-Splitter (as of March 31): 121,280

 – Value of Holding (as of March 31): $12.42 Million

The $44 billion operator and developer of communications real estate has seen its stock appreciate by 6.7% so far this year. American Tower Corp (NYSE:AMT) recently closed its acquisition of Viom in India as it seeks to diversify its operations. In the first quarter the specialized REIT also benefitted from the growing demand for higher bandwidth applications arising from smartphone proliferation, which has also led to mobile operators improving their coverage, capacity, and peak network speed. These factors led to American Tower Corp (NYSE:AMT)’s top-line expansion of 19.4% on a year-over-year basis to $1.29 billion in the first quarter. While this was in-line with estimates, the company’s quarterly AFFO of $1.41 beat expectations by $0.11. Skylands Capital, which is managed by Charles Paquelet, was less upbeat about the company in the first trimester, as it slashed its American Tower Corp (NYSE:AMT) holding by 22% to about 195,000 shares.

Disclosure: None