Andrew Sandler’s Top Stock Picks

Andrew Sandler joined Sandler Capital Management in 1991. The firm was founded by Harvey Sandler, Andrew Sandler’s father, in 1988. Andrew Sandler worked as an analyst in the hedge fund team from 1991 to 1997. Since 1997, he has worked as the portfolio manager for the flagship hedge fund of the company. He is also currently the head of the hedge fund business of the firm. Sandler has a BS in Finance from the Business School of the University of Wisconsin. He began his career in investments as a research analyst at Perry Partners.

Andrew Sandler

Recently Sandler released its latest holdings in a 13F filing. In this article, we are going to discuss the most bullish bets of Sandler and decide whether it makes sense for investors to imitate these stock picks.

Rockwell Automation Inc (ROK): ROK is one of the large positions in Sandler’s portfolio. Over the fourth quarter last year, Sandler boosted its ROK stakes by 112%. At the end of 2011, Sandler had $46 million invested in this stock. A few other hedge fund managers were also bullish about ROK. Jim Simons’ Renaissance Technologies reported owning over $7 million worth of ROK shares. Louis Navellier and Ken Fisher were also bullish about this stock.

We like ROK. The company has strong revenue growth last year. Its total revenue was up 25% for the fiscal year of 2011. Its net income was also up 50%. The growth may be slower in 2012, especially in European countries, but we are still very optimistic about the demand for automation products and services. We expect new automation systems to be built continuously in emerging markets, and the existing plants in counties like US will need to be modernized. ROK also has reasonable valuation multiples. It has a relatively low forward P/E ratio of 13.83 and its EPS is expected to grow at an average of 14.59% per year for the next five years. Therefore, its P/E ratio for 2014 is about 10. The main competitor of ROK, ABB Ltd (ABB), looks attractive too. Its 2014 P/E ratio is only 9.3.

Clean Harbors Inc (CLH): Sandler also largely increased its position in CLH over the fourth quarter. The fund increased its CLH stakes by 106% and had $39 million invested in this position at the end of last year. A few other hedge fund managers were also bullish about CLH. For example, Ken Griffin’s Citadel Investment Group had $17 million invested in CLH at the end of September. Jim Simons, Richard Driehaus, and Louis Navellier were also in favor of CLH. CLH has strong revenue growth and good cash flow from operations. However, it seems that CLH is a bit overvalued compared with its peers. The main competitor of CLH is Waste Management Inc (WM). CLH’s forward P/E ratio is 26.11, versus 15.25 for WM. Although CLH has a higher expected growth rate of 13.75%, versus 9.67% for WM, we think the price premium for the growth is excessive. CLH’s P/E ratio for 2014 is 20, compared with 12.7 for WM. So we do not think this is the right time to purchase CLH.

Some other large positions in Sandler’s portfolio are Currency Shares Euro Trust Puts (FXE), SPDR S&P Midcap 400 ETF Trust (MDY), Vail Resorts Inc (MTN), and Dominos Pizza Inc (DPZ). MTN’s forward P/E ratio is a bit high: 32.38, but it is expected to grow at over 40% over the next year. DPZ looks fairly priced. It has a forward P/E ratio of 17.26 and it is expected to grow at over 10%. Israel Englander was bullish about both MTN and DPZ. Millennium Management had $18 million invested in MTN and about $800,000 invested in DPZ at the end of the fourth quarter. We think DPZ is more attractive compared with its competitor Papa John’s International Inc (PZZA). Their forward P/E ratios are almost the same, but DPZ’s expected growth rate in recent years is higher than that of PZZA.