Related tickers: American International Group Inc (NYSE:AIG), Delphi Automotive (NYSE:DLPH)
The most striking feature of Monarch Alternative Capital is that, despite being a $5.4 billion hedge fund, its equity portfolio is quite small, and is very concentrated. The top five take up 83.3% of the entire portfolio. The fund focuses on distressed debt and bankrupt companies and maintains a research and event-based strategy. According to the 13F filing from 4Q 2012, the fund added three new positions, which, not surprisingly, are in the top five. So, as a two-for-one, we’re going to look at the top five holdings in Monarch Alternative Capital and the new positions, because, hey, it’s always important to track hedge funds for their market-beating potential.
With 46.37% of the portfolio, American International Group Inc (NYSE:AIG) holds the top spot and is a recent addition to the fund with 1.185 million shares. With a 3.44 beta, American International Group Inc (NYSE:AIG) is very sensitive to market fluctuations, which, given the recent run-up in the broader market, explains why the stock is up nearly 10% since the start of the year. Unfortunately, American International Group Inc (NYSE:AIG) continues to be plagued by ghosts of its recent past, namely, the government bail-out of the insurer in 2008. A lawsuit against the government by former CEO Hank Greenberg, and very aggressive attempts by management to return American International Group to its former glory by shedding noncore assets and risky investments has prevented the company from focusing on establishing a more substantial advantage over its competitors.
At number two is Delphi Automotive PLC (NYSE:DLPH). The vehicle parts manufacturer recently underwent an aggressive restructuring that eliminated much of its unprofitable European businesses. Even though DLPH is going to have to absorb the cost of this restructuring to the tune of at least $300 million, the longer term outlook is remains bullish. Analysts maintain a buy recommendation for the stock despite weak 4Q earnings in which total revenues fell by 3.2%. DLPH’s global presence, its market share in government-required auto parts and low cost labor expense makes it a very attractive stock.
Third on the list is US Concrete Inc (NASDAQ:USCR). 4Q earnings for USCR were clearly a disappointment as net income fell to from -$11.7 million to -$25.7 million as production costs rose 16%. But the outlook for the stock remains relatively upbeat, evidenced by the performance of the stock. The USCR price has gained 51% since the start of the year and its Aridus Rapid Drying Concrete was awarded the 2013 Most Innovative Product Award by the Concrete Industry. And of course there’s the improvement in the construction industry, which is giving a lift to home-building and construction stocks.