Rehan Jaffer is an activist investor who founded H Partners Management in 2005 and presently has around $1 billion in assets under management (AUM). Jaffer acquired his taste for activist investing while at Dan Loeb’s Third Point, a pioneer activist fund. After his time at Third Point, Jaffer briefly joined River Run Partners in 2004, after which he went on to found H Partners. In the book Hedge Hunters, Loeb says of Jaffer: “He is super-hungry. He’s got a good nose. He’s very intelligent. So he’s got a great combination of having a high IQ, really strong financial analytics, a great nose for value, and great trader sense.”
The following reviews H Partners’ holdings as reported in its most recent 13F filing (which you can view here).
The fund is famous for emerging with a 24 percent stake in Six Flags Entertainment Corp (NYSE:SIX) after the company filed for bankruptcy in 2009. Since the middle of 2009, the company has returned over 250 percent. Six Flags is the largest theme-park company by size, managing 19 parks in the United States, Mexico, and Canada. However, Six Flags has had trouble consistently living up to earnings expectations, and it has fallen short of analyst expectations in the past two quarters. Shares are trading at 32 times earnings for fiscal year 2013, which is down from its forward P/E of 52 earlier this year. Nevertheless, the company’s shares do not come at a bargain.
W.R. Grace & Co.
W.R. Grace & Co. (NYSE:GRA) produces and sells a variety of different specialty chemicals and materials worldwide. The company’s forward P/E is 12.9, which is comparable to the S&P BMI Materials index forward P/E of 12.7. The company recently acquired Rheoset Industria e Comercio de Aditivos, a Brazilian manufacturer of concrete admixtures, thereby adding to its holdings in the region. Like other chemical companies, Grace tends to do well when a variety of economic factors improve, like construction and oil refining volume. In 2010, the company reported that 33 percent of sales were associated with construction, while 28 percent of sales came from the company’s refining technologies division. So the recent bond-buying stimulus from the Federal Reserve stands to benefit Grace.
Sealy Corporation (NYSE:ZZ) is the famous manufacturer and distributor of mattresses, box springs, and other bedding accessories. The company’s shares have been in a tumble in the wake of the company’s IPO, which raked in $448 million; shares fell flat in 2009 and the company suspended its dividend. Sealy reported $1.2 billion in sales for 2012. Another company that is sensitive to consumer sentiment and economic outlook, Sealy has had trouble returning to profitability in the wake of the Great Recession—the company has a net profit margin of -0.4 percent—though it is trying to enter the premium mattress market formerly occupied solely by Tempur-Pedic International Inc. (NYSE:TPX). D.E. Shaw’s hedge fund also has a stake in Sealy Corporation (you can view his portfolio here).
Boyd Gaming Corporation (NYSE:BYD) owns and operates 16 gaming properties in the United States, as well as resorts in Florida and Hawaii. The stock has been on a roller-coaster since 2004. In 2008, the company suspended its quarterly dividend that it instituted in 2003. Shares look expensive and are trading at 41 times forward earnings, though earnings reports thus far in 2012 are improved from the net earnings loss reported last year. The company’s debt-to-equity has also increased from about 230 percent in 2009 to 270 percent in 2011, making it a highly leveraged company.
Distressed companies are the hallmark of an activist investor’s portfolio, which is full of shares purchased from shareholders who have lost confidence in a company. In all, Jaffer’s picks fit the bill: many need to stage a considerable turn-around in order to be attractive long-term investments.