It appears Alexander Roepers’ Atlantic Investment Management has had a change of heart regarding Oil States International, Inc. (NYSE:OIS). After increasing his position in the manufacturer of drilling equipment and provider of drilling services during the fourth quarter by 30% with several purchases well above $45, Roepers has begun to sell off the position for anything he can get above $40, while continuing to supplement it with purchases below $40. His latest filing reports ownership of 2.14 million shares, a 4.2% activist stake, a big decline from the 3.85 million shares he reported ownership of in a filing at the end of January.
The selloff seems to indicate that Roepers was unable to achieve what he hoped to with his activist stance, which may have been a sale of Oil States International, Inc. (NYSE:OIS) to a larger oil company. Alternatively, he may have been frustrated with the continuing weakness in oil prices, which has dragged down shares of Oil States International, Inc. (NYSE:OIS) despite it being less intrinsically tied to oil prices than an actual oil producer. Oil States International had returns of -18.67% in the first quarter.
It’s been a downhill run for Oil States International, Inc. (NYSE:OIS) since it completed its spinoff of Civeo Corp (NYSE:CVEO), its former lodging business, at the end of May, 2014. That move was made at the behest of a pair of activist investors, Barry Rosenstein and David Einhorn. Rosenstein’s JANA Partners has since exited its positions in both companies. Civeo has likewise struggled since its separation, down by 83.9% to just $3.66 since it went solo. Einhorn does still maintain a small position in Oil States International, Inc. (NYSE:OIS) and a slightly larger position in Civeo, while billionaire Steve Cohen opened a new position in Oil States International during the fourth quarter.
Owens-Illinois Inc (NYSE:OI) was Roepers’ top pick heading into 2015, his position consisting of 12.22 million shares valued at $329.82 million. A manufacturer of glass products and containers, Owens-Illinois Inc (NYSE:OI) also had a difficult quarter, with shares falling by 13.60%. Shares took a big dip in early March after Owens-Illinois provided first quarter earnings guidance that came under estimates at $0.40 to $0.45 per share. Roepers has by far the greatest exposure to Owens-Illinois Inc (NYSE:OI) among funds in our database, at nearly 21%. The next highest was the less than 5% exposure to the stock of Julian Allen’s Spitfire Capital.
Baker Hughes Incorporated (NYSE:BHI) had a strong quarter, up by 13.70%, while helped offset some of the losses from the two aforementioned positions. Another oilfield services company, Baker Hughes went on an upswing after it reported strong financial reports for the fourth quarter. It was also revealed that prominent activist investor Jeffrey Ubben had taken a large activist stake in the company around that same time. Ubben now has the largest position among the funds we track, while Anthony Giammalva’s Sound Energy Partners has the greatest exposure to the stock, followed by Roepers.
Roepers discussed each of his next two picks (as well as Owens-Illinois) at the Capitalize for Kids conference in Canada last October. There, he pegged Harman International Industries Inc./DE/ (NYSE:HAR) and Triumph Group Inc (NYSE:TGI) as having price targets of $124 and $100 respectively, which suggested large upside for each stock. He has thus far been right on the former, while the latter has dipped in price since that conference.
Harman International Industries Inc./DE/ (NYSE:HAR) has soared to over $137, up by more than $30 since the conference, and 25.54% in the first quarter, gaining the majority of that on January 30 after a strong earnings report and improved guidance for FY 2015. Roepers again had by far the largest exposure to the stock, at over 17%, while no other fund we track had greater than 1% exposure.
Triumph Group Inc (NYSE:TGI) however dipped by 11.10% during the first quarter and is down slightly since the conference. Shares did however jump by more than 8% in April as the company’s former CEO Jeffry D. Frisby stepped down amid a host of operational issues and production shortfalls, to be temporarily replaced by Chairmain and Founder Richard C. Ill until a permanent replacement is found. Roepers easily had the greatest exposure to the stock yet again, and the largest overall position, with billionaire David Tepper having a smaller position in aviation industry parts manufacturer.
Roepers’ top picks are notable to us given the fact that more than half of his top five picks are in small-cap stocks. It’s investors like him who add great value to our small-cap strategy system, as they are heavily invested in the success of their small-cap picks and have poured considerable resources into identifying undervalued or under-the-radar companies to invest in. We have found that collectively, hedge funds’ top small-cap picks provide a tremendous investment opportunity, with our strategy having returned over 137% since it was launched at the end of August, 2012, beating the market by more than 80 percentage points during that time (see the details).