Billionaire Bruce Kovner retired in 2011 from Caxton Associates LP, an investment firm he founded in 1983. Over the 28 years of his being at the helm of the firm, Kovner successfully managed to produce an average annualized return of 21%, double the annual return of the S&P 500 Index over the same period. Even though Kovner is no longer at Caxton, he still retains a substantial minority stake in this global macro strategy hedge fund. The firm is now managed by Andrew Law, who was its chief investment officer under Kovner.
Last month, Caxton Associates disclosed its portfolio of holdings in the 13F filing with the SEC. At the end of last year, this $6.7-billion investment firm allocated 14.85% of its portfolio assets to American International Group (AIG) alone. It also heavily invested in U.S. banks and the two dominant U.S. auto industry players. Here is a closer look at Caxton’s five bullish bets at the end of December 2012, including the stocks with dividend yields of about 2.0% that represent good value plays.
Williams Companies, Inc. (NYSE:WMB) is an operator of interstate gas, NGL transportation, and oil and gas gathering pipelines. The high-growth firm is attractive as it generates significant fee-based revenues from long-term contracts that are non-dependent on commodity price fluctuations. Instead, they depend on transported volumes, which have been surging amidst the shale gas output boom. These revenues at Williams Companies, Inc. (NYSE:WMB) are forecasted to increase notably in coming years. The fee-based revenues provide for secure cash distributions, which, due to the capacity expansion at WMB and its interests, will result in increasing cash flows and distributions. The company is currently paying a yield of 3.9%. It has a solid distribution coverage of 1.54x. WMB’s distributions are projected to increase by 20% this year and next. Its total adjusted segment profit is expected to rise about 63% by 2014. Some analysts see WMB as undervalued given its robust growth and an increasingly more stable revenue profile. Last quarter, Caxton initiated a new position in Williams Companies, Inc. (NYSE:WMB) worth more than $53 million.
JPMorgan & Chase Co. (NYSE:JPM), the largest U.S. bank by assets, was another bullish bet by Caxton in the fourth quarter. The hedge fund raised its share holdings in JPM by 137% to about 1.1 million shares or some $49 million. The bank appears undervalued. Its ROE of 10.7% is better than the industry average of 8.0%. Yet, the bank is trading at book value, which is still an 11% premium to its peer group, but a 40% discount to its rival Wells Fargo & Co. (WFC). JPMorgan & Chase Co. (NYSE:JPM) has just passed the Fed stress test, with the bank’s Tier 1 common capital ratio falling under the severely adverse scenario from 10.4% in Q3’12 to a projected 6.8% in the Q4’14. The stress test, which serves as a basis for the Fed’s approval of the banks’ capital plans, showed JPM’s capital ratio above the regulatory minimum of 5%, but below the average capital ratio for the 18 banks under the review and below the ratios of its main peers Citibank (C) and Bank of America Corporation (BAC). JPM itself came with a more upbeat result of a similar stress test scenario (check it out here). Because it passed the Fed stress test, JPMorgan & Chase Co. (NYSE:JPM) is expected to seek a dividend increase and an annual share buyback plan worth only half its last-year’s $15 billion, according to FT. Analysts polled by Bloomberg expect the bank to raise its dividend by 16.7%. JPM has a dividend yield of 2.4% and a payout ratio of 22%.