Biggest Q2 Moves Completed by Hedge Fund Run by Ex-Bear Stearns Employees

Gabalex Capital Management LLC is a New York-based long/short equity hedge fund started by former Bear Stearns employees Nigel Greig and Kenneth Cowin in 2008. Prior to establishing Gabalex Capital, Mr. Greig served as Senior Managing Director in the private client services division at Bear Stearns for a little more than a decade, where he managed discretionary accounts for ultra-high-net-worth individuals. Meanwhile, Mr. Cowin, who currently serves as the Chief Compliance Officer and Chief Operating Officer of Gabalex Capital, worked at Bear Stearns from April 1978 to December 2003.

The New York-based asset manager recently submitted its 13F filing with the U.S. Securities and Exchange Commission for the second quarter reporting period of June 30, revealing a long-only portfolio worth $274.43 million. Gabalex Capital Management made one new addition to its portfolio during the quarter, boosted four existing positions, sold out of two positions, and reduced five existing holdings. We have decided to lay out a list of five of the most noteworthy moves made by the investment firm run by the ex-Bear Stearns employees during the quarter, including checking out its new position and the two that it closed.

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Gabalex Capital Sells Off Kansas City Southern (NYSE:KSU) Stake

Gabalex Capital Management LLC sold out of its 175,000-share stake in Kansas City Southern (NYSE:KSU) during the June quarter. The stake accounted for 5.2% of the value of Gabalex Capital’s concentrated equity portfolio at the end of the first quarter, and represented the firm’s 11th-largest equity position at that time. The fourth-largest railroad in North America based on revenue has seen the value of its stock rise by 27% since the beginning of the year. Kansas City Southern reported second quarter revenue of $568.5 million, a decrease of 3% year-over-year, due to the weakening of the Mexican peso against the greenback and lower fuel surcharges. In late-July, the company revealed that its operations in Mexico experienced service interruptions and shipment delays due to a series of civil protests on or near its rail network. The protests were directed towards the Mexican government. Ken Fisher’s Fisher Asset Management reported ownership of 687,393 shares of Kansas City Southern (NYSE:KSU) as of June 30.

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Gabalex Capital Also Jettisons National-Oilwell Varco Inc. (NYSE:NOV) Stake

The New York-based asset manager also discarded its 250,000-share position in National-Oilwell Varco Inc. (NYSE:NOV) during the three-month period ended June 30. The shares of the designer, manufacturer, and seller of equipment and components used in oil and gas drilling operations are down by 2% thus far in 2016. National-Oilwell Varco recorded a $217 million net loss on $1.7 billion in revenue for the second quarter. The year-over-year declines were sharp, as revenue decreased by $2.2 billion and net income fell by $506 million compared to the second quarter of 2015. Given that a significant increase in drilling activity is not likely to occur in 2016 as commodity prices remain depressed, the oil-field equipment maker plans to continue focusing on cost control and sizing its operations to anticipated levels of activity throughout the second-half of the year. John W. Rogers’ Ariel Investments was the owner of 1.77 million shares of National-Oilwell Varco Inc. (NYSE:NOV) at the end of March.

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On the next page of this article we’ll discuss three other notable moves completed by Gabalex Capital during the second quarter.

Gabalex Capital Adds Apple Inc. (NASDAQ:AAPL) Stake to its Portfolio

 – Shares Owned by Gabalex Capital Management (as of June 30): 50,000

 – Value of Gabalex Capital Management’s Holding (as of June 30): $4.78 Million

The long/short equity hedge fund snapped up a new stake of 50,000 shares of Apple Inc. (NASDAQ:AAPL) during the April-to-June period, which was valued at $4.78 million on June 30. The new holding was the smallest position in Gabalex Capital’s equity portfolio at the end of June, accounting for 1.7% of its value. At an employee meeting in late-July, Tim Cook, the CEO of the world’s most valuable company, announced that the iPhone-maker had sold more than one billion iPhones throughout its history. Having such an immense installed userbase (though obviously not all of those phones are still in use), Apple appears to be on track to make its services unit the size of a Fortune 100 company by 2017. The business unit comprises its mobile payment service Apple Pay, streaming music service Apple Music, and cloud hosting service iCloud. Apple’s services revenue jumped by 19% year-over-year to approximately $6 billion in its latest fiscal quarter, with App Store sales growing by a record 37% year-over-year. Apple shares are up by a little less than 1% year-to-date. Christopher R. Hansen’s Valiant Capital owns 999,800 shares of Apple Inc. (NASDAQ:AAPL) as of June 30.

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Gabalex Capital Boosts Position in Honeywell International Inc. (NYSE:HON)

 – Shares Owned by Gabalex Capital Management (as of June 30): 200,000

 – Value of Gabalex Capital Management’s Holding (as of June 30): $23.26 Million

Gabalex Capital upped its position in Honeywell International Inc. (NYSE:HON) by 150,000 shares during the second quarter to 200,000 shares valued at $23.26 million on June 30. The shares of the industrial conglomerate are 12% in the green year-to-date. Earlier this year, Honeywell decided to abandon its $90 billion pursuit of industrial peer United Technologies Corporation (NYSE:UTX) after facing strong opposition from the target’s management, antitrust regulators, as well as major customers. Instead, the bidder’s Board decided to authorize the repurchase of up to $5 billion worth of shares. In late-July, analysts at Barclays upped their price target on Honeywell to $131 from $127 and reiterated their ‘Overweight’ rating on the stock, citing a strong second quarter earnings report, higher margin expectations in the second-half of 2016, and the positive impact of share buybacks. Stephen J. Errico’s Locust Wood Capital Advisors has 277,319 shares of Honeywell International Inc. (NYSE:HON) among its holdings as of the end of the second quarter.

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Gabalex Capital Trims W. W. Grainger Inc. (NYSE:GWW) Stake

 – Shares Owned by Gabalex Capital Management (as of June 30): 120,000

 – Value of Gabalex Capital Management’s Holding (as of June 30): $27.27 Million

Gabalex Capital Management trimmed its equity stake in W. W. Grainger Inc. (NYSE:GWW) by 30,000 shares during the three months ended June 30, ending the second quarter with 120,000 shares valued at $27.27 million. The broad-line distributor of maintenance, repair and operating (MRO) supplies has seen its market capitalization jump by 7% since the beginning of 2016. The company’s sales for the second quarter increased by 2% year-over-year to $2.6 billion. W. W. Grainger’s Canadian business continued to be impacted by low crude oil prices, as well as the fires in Fort McMurray and foreign currency headwinds. The company’s second quarter net earnings were $173 million, down by 22% year-over-year. William Von Mueffling’s Cantillon Capital Management owned 475,061 shares of W. W. Grainger Inc. (NYSE:GWW) at the end of March.

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Disclosure: None