David Abrams‘ Abrams Capital Management recently submitted its 13 filing for the period of March 31. According to the filing, the firm had a public equity portfolio valued at $1.34 billion, which represents a 30.35% decrease over the previous reporting period when it stood at $1.93 billion. The firm’s public equity exposure accounts only for 17.65% of its assets, having a total of $7.62 billion in assets under management. David Abrams founded Abrams Capital Management in 1999 and he currently acts as the firm’s manager. Abrams, whose top ten holdings represent 96.32% of his total public equity exposure, mainly invests in services, although he also has interests in other industries such as finance and technology. Being one of the top hedge funds monitored by Insider Monkey, we looked into its favorite small-cap picks and will discuss them in this article, with them being Barnes & Noble, Inc. (NYSE:BKS), Global Eagle Entertainment Inc (NASDAQ:ENT), and InterXion Holding NV (NYSE:INXN).
We follow hedge funds like Abrams Capital because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 144%, outperforming the S&P 500 ETF by nearly 85 percentage points (see more details here).
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The fund’s 13F filing for the most recent reporting period showed that it owned 4.11 million shares of Barnes & Noble, Inc. (NYSE:BKS) with a total market value of $97.72 million, the position unchanged from the previous quarter. The Fortune 500 Company, which ranks tops among retail booksellers in the United States, has been challenged by sagging digital content sales, which slumped by 29.3% year-over-year for its fiscal third quarter of 2015 ended January 31. Barnes & Noble, Inc. (NYSE:BKS) is however focused on expanding its activities to improve its returns. One of its moves towards that end was the purchase of Flashnotes Inc., which is aimed at further increasing its sales in Barnes & Noble’s College division, a unit that registered a 7.2% year-over-year increase in sales to $521 million from $486.2 million. The bookseller posted consolidated net earnings of $72 million, or $0.93 per share, which does show an improvement over the previous year when it posted $63 million, or $0.86 per share. Although the company expects improvements in a number of its segments, several of them are expected to be flat for the full year, while it also expects an EBITDA loss in its NOOK segment. Other funds that own the stock include Tontine Asset Management and Bernard Selz‘s Selz Capital.
At the end of the first quarter, Abrams Capital Management held a total of 5.00 million shares of Global Eagle Entertainment Inc (NASDAQ:ENT) worth $66.55 million. Wall Street analysts currently have a short-term price target of $19.00 on Global Eagle Entertainment Inc (NASDAQ:ENT) and have given it a consensus “Sell” recommendation, although the price target suggests large potential upside with shares currently trading at just $13.82. While this year’s earnings per share estimate is for a loss of $0.01, the stock is expected to improve next year to a gain of $0.02. The quarter saw four more hedge funds out of the 730 we are monitoring purchase positions in the stock, lifting the number to 17. The hedge funds had invested a total of $504.52 million in the stock. A few of these hedge funds are John C. Walker‘s Stonerise Capital Management, which held 1.6 million shares and PAR Capital Management with 28.98 million shares.
Abrams Capital Management holds 2.35 million shares of InterXion Holding NV (NYSE:INXN) with a market value of $66.21 million. Analytics indicate that the stock has a price-to-earnings ratio of 66.91 compared to the technology sector’s price-to-index average of 17.8. The stock has also beaten the S&P 500 by 8.2% and currently has a market cap of $2.26 billion. According to its last earnings report released on May 7, the stock delivered $0.20 in earnings per share compared to the consensus estimate of $0.14. William Blair has upgraded the shares of the company to “Outperform” from “Market Perform.” Eight analysts that have also recently commented on the stock have a consensus rating of “Buy” and an average short-term price target of $32.20, suggesting potential upside of nearly 15%. InterXion, which is a provider of technology services, provides its support to more than 1,400 customers and has operations in 11 countries. It recently announced a partnership deal with Global Azure ExpressRoute EXP in an effort to enable its customers to achieve more secure connections and better performance in private connections to Microsoft Azure. A total of 30 hedge funds out of the ones we monitor were invested in InterXion Holding NV (NYSE:INXN) as of March 31, with an aggregate investment value of $708.88 million. The largest of those was Ricky Sandler‘s Eminence Capital.
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