$800 Million Hedge Fund’s Big New Positions Include Delta Air Lines Inc. (DAL), MGM Resorts International (MGM) & More

Selz Capital was founded by Bernard Selz in 2003 and has grown to $773.26 million in regulatory assets under management. Mr. Selz is the sole portfolio manager and makes all decisions related to investments. Prior to founding Selz Capital, Mr. Selz graduated from Columbia University in 1960 and co-founded Furman Selz in 1973. Between 1993 and 1997, Mr. Selz served as Chairman, Director of Research and Portfolio Manager of Furman Selz until the company was taken over by ING. In 1997, Dutch insurance and banking group ING bought Furman Selz for $600 million and Mr. Selz continued to work at the acquired company as Senior Managing Director until 2003.

Selz Capital invests in global publicly-traded securities, but also invests in private stocks, debt, convertible securities, and options. In its latest 13F filing, Selz Capital disclosed an equity portfolio worth $498.24 million, which contained 56 positions, including one holding in convertible debt. The filing also revealed that Selz’s equity portfolio is fairly diversified across sectors, with Consumer Discretionary, Transportation, Technology, and Energy Stocks amassing the largest shares.

At Insider Monkey, we also estimate a fund’s returns by taking into account the weighted average performance of its long positions in companies with a market capitalization of at least $1 billion. According to our calculations, Selz Capital’s stock picks posted a weighted average return close to flat in the first six months of 2017. On the other hand, Selz’s stock picks performed strongly in the third and fourth quarters of 2016, bringing its returns over the 12-month period ended June 30 to 18.81%.

Delta Airlines DAL Monte Carlo airplane

Chris Parypa Photography / Shutterstock.com

During the third quarter, Selz Capital made some substantial changes to its 13F portfolio. The fund closed nine positions, reduced its exposure to eight companies, and increased its holdings in five stocks. At the same time, Selz Capital initiated stakes in 17 companies between July and September. Let’s take a closer look at five companies in which Selz initiated stakes during the third quarter and try to identify the reasons behind the bullish sentiment.

Let’s start with Delta Air Lines, Inc. (NYSE:DAL), in which Selz Capital acquired 150,498 shares worth $7.26 million during the third quarter. Given that Selz Capital’s largest holding is Macquarie Infrastructure Corp (NYSE:MIC), which provides aviation services, and that it also initiated a stake Southwest Airlines Co (NYSE:LUV) during the third quarter, Selz is likely betting big on the air transportation segment. The airlines industry seems to be doing well, as it has stabilized after a decade of aggressive consolidation, which resulted in four airlines controlling 80% of the market.

Delta Air Lines, Inc. (NYSE:DAL) has seen its stock surge by over 400% in the last five years as the company increased its revenue to $39.64 billion last year from $36.67 billion in 2012, while its EPS surged to $5.79 from $1.19. Delta Air Lines, Inc. (NYSE:DAL) also raised its dividend to $0.31 from $0.06 between 2013 and 2017 and its stock currently has a forward yield of 2.28%, the largest among major airlines. Last year, Warren Buffett’s Berkshire Hathaway initiated a stake in Delta Air Lines, Inc. (NYSE:DAL) and currently holds 53.11 million shares, based on its 13F filing for the end of June.

On the next page, we will take a look at four other companies in which Selz Capital initiated stakes during the third quarter.

In MGM Resorts International (NYSE:MGM), Selz Capital disclosed a new position containing 295,000 shares worth $9.61 million in its latest 13F filing. MGM Resorts International (NYSE:MGM)’s stock took a hit at the beginning of October after a mass shooting took place in Las Vegas near its Mandalay Bay hotel. However, analysts expect that the decline in the number of visitors to Las Vegas will be short-lived and MGM Resorts International (NYSE:MGM) won’t be affected significantly. In addition, the company is about to open its resort and casino in Cotai and is benefiting from gaming revenue growth in Macau.

Cott Corp (USA) (NYSE:COT) is another new position in Selz Capital’s equity portfolio, as the fund added 682,276 shares valued at $10.24 million between July and September. The stake was initiated as Cott Corp (USA) (NYSE:COT) agreed to sell its traditional manufacturing business to Refresco for $1.25 billion. The deal is expected to be closed by the end of the year. Cott Corp (USA) (NYSE:COT) expects that the sale will allow it to deleverage its business and to focus on its water, coffee, tea, and filtration businesses. The company also suggested that it might pursue more acquisitions in the space it plans to focus on.

In Altaba Inc (NASDAQ:AABA), the company that accounts for Yahoo!’s investments in Alibaba Group Holding Ltd (NYSE:BABA) and Yahoo Japan after Yahoo’s core business was sold to Verizon Communications Inc. (NYSE:VZ) earlier this year, Selz Capital initiated a $13.25 million stake during the third quarter, having amassed 200,000 shares. Altaba Inc (NASDAQ:AABA) is expected to unload its position in Yahoo Japan and other assets and sell its position in Alibaba Group Holding Ltd (NYSE:BABA) over the next couple of years, returning as much capital to shareholders as possible. At the end of July, Altaba Inc (NASDAQ:AABA) announced a $5 billion buyback. In June, JPMorgan analysts initiated coverage on Altaba Inc (NASDAQ:AABA) with an ‘Outperform’ rating and $65 price target, saying that the company’s stake in Alibaba could be worth $76.5 billion by the end of 2018.

SPX Corp (NYSE:SPXC) represents Selz Capital’s largest new position and its third-largest holding in terms of value as of the end of September. The fund acquired 899,093 shares valued at $26.38 million during the third quarter. SPX Corp (NYSE:SPXC) provides infrastructure equipment and solutions in HVAC and Detection & Measurement. SPX Corp (NYSE:SPXC)’s stock has gained 25% since the beginning of the year, as the company posted better-than-expected income for the past three quarters, but registered declines in quarterly revenue. In 2014, SPX Corp (NYSE:SPXC) decided to make some changes to its business, such as spinning-off its Flow Technology and Hydraulic Technologies businesses and some other segments.

Disclosure: None