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Billionaire Brian Higgins’ New Stock Picks

King Street Capital is a New York-based distressed debt fund founded by billionaire Brian J. Higgins and Francis Biondi in 1995. King Street Capital can boast of being one of the handful of hedge funds on the Street to not have a single year of negative returns since its inception. Although most of the fund’s $17+ billion in assets under management (AUM) is invested in fixed income securities, it also manages a sizable U.S public equity portfolio. According to the fund’s most recent 13F filing with the SEC for the reporting period of June 30, its U.S equity portfolio was worth almost $133.34 million. King Street runs a very concentrated equity portfolio by hedge fund standards, reporting only nine positions at the end of June. The fund had a high turnover of 88.89% during the second quarter, having sold out its entire stake in five stocks and initiated a stake in three stocks. In this article we are going to focus on those three stocks in which King Street Capital initiated a position during the April-June period, which are Caesars Entertainment Corp (NASDAQ:CZR), Equinix Inc (NASDAQ:EQIX), and Globalstar, Inc. (NYSEMKT:GSAT).

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Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 60 percentage points since the end of August 2012. These stocks returned a cumulative of 118% vs. a 57.6% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

Brian J. Higgins
Brian J. Higgins
King Street Capital

King Street Capital initiated a stake in Caesars Entertainment Corp (NASDAQ:CZR) by purchasing 1.5 million shares during the second quarter. As of June 30, this stake was worth $9.18 million and represented King Street’s second-largest holding in a stock. Shares of the casino entertainment company have declined by 50% year-to-date and are now trading below their 2012 IPO price of $9. On January 15, the main operating unit of the company, Caesars Entertainment Operating Company Inc, filed for Chapter 11 bankruptcy. Since then the company has been engaged in a bitter battle with its creditors, primarily second lien debt holders which includes Billionaire David Tepper’s Appaloosa Management LP. Shares of the company saw a massive rise of 16.74% on August 21 on news that the company and its creditors have reached an agreement. On May 14, analysts at Barclays reiterated their ‘underweight’ rating on the stock while lowering their price target to $11 from $17. Among the hedge funds we track, John Paulson‘s Paulson & Co was the largest shareholder of Caesars Entertainment Corp (NASDAQ:CZR) at the end of second quarter, owning almost 14.46 million shares.

Equinix Inc (NASDAQ:EQIX) represented the second-largest new purchase of King Street Capital for the second quarter. The fund purchased 19,600 shares of the company during the quarter, worth almost $5 million as of June 30. On August 5 the data center company announced the second phase of expansion of its International Business Exchange data center, also known as SG3, in Singapore. The company declared mixed second quarter results on July 29, reporting EPS of $1.03 on revenue of $665.60 million, compared to analysts’ estimates of EPS of $1.10 on revenue of $657.74 million. On July 31, analysts at KeyBanc reiterated their ‘Overweight’ rating on the stock and upped their price target to $323 from $295. While King Street initiated a stake in Equinix Inc (NASDAQ:EQIX), John H. Scully‘s SPO Advisory Corp – one of the largest shareholders of the company – reduced its stake by 18% during the second quarter, to 4.63 million shares.

King Street Capital bought 12,396 shares of Globalstar, Inc. (NYSEMKT:GSAT) during the April-June period, it’s third new position of the quarter. As of June 30, this stake was worth $26,000. Shares of the mobile satellite services company have been nearly halved since mid-March and are down by almost 34% for the year. On August 10, Globalstar, Inc. (NYSEMKT:GSAT) reported mixed quarterly earnings. While analysts were expecting the company to report an EPS loss of $0.02 on revenue of $25.62 million, the company posted EPS of $0.17 on revenue of $23 million. In the past few weeks several industry experts have raised concerns over devices manufactured by the company being vulnerable to having their transmissions intercepted. Israel Englander‘s Millennium Management increased its holdings in the company by 448% during the second quarter to nearly 2.8 million shares.

Disclosure: None

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