Only a handful of people would disagree that hedge funds’ 13F filings reveal high-potential stocks, especially billionaires’ quarterly filings. Hedge fund powerhouse Avenue Capital Group, founded by Marc Lasry and Sonia Gardner in 1995, recently filed its quarterly report,which surely hides several stock winners. Billionaire Marc Lasry believes that “energy today is a once-in-a-lifetime opportunity” and he even raised money for an energy-oriented portfolio earlier this year. His investment firm primarily focuses on investing in distressed debt and undervalued securities across a wide array of industries. However, Avenue Capital is currently among the hedge fund firms that identify the energy sector as being full of investment opportunities, although Lasry does not necessarily anticipate that his energy bets will pay off in the short-run. The New York-based Avenue Capital has $13.2 billion in assets under management as of September 30, while its equity portfolio has a market value of $626.75 million. The billionaire hedge fund manager and his team significantly cut their exposure to the U.S equity markets during the third quarter, as they reduced positions in 12 stocks, sold out of three positions, and lifted their position in only one stock. Considering this massive portfolio rebalancing process, it would be worthwhile to take a look at Avenue Capital’s top stock picks at the end of the third quarter.
Professional investors like Marc Lasry spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned 102% and beaten the market by more than 53 percentage points since the end of August 2012 (see the details).
#5 Euronav NV (NYSE:EURN)
– Shares Owned by Avenue Capital Group (as of September 30): 3.63 Million
– Value of Holding (as of September 30): $50.48 Million
Avenue Capital cut its overall holdings in Euronav NV (NYSE:EURN) by 200,000 shares during the three-month period that ended September 30. The independent tanker company that engages in the ocean transportation of crude oil and petroleum products has seen its shares advance by 10% since the start of the year. The robust demand for oil, the moderate vessel supply, and the massive supply of crude oil are some of the factors that assisted the company in delivering a strong financial performance in the third quarter. Euronav NV pays an annualized dividend of $1.24 per share, which gives the stock a current dividend yield of 9.12%. It is also worth pointing out that the tanker company has a trailing price-to-earnings ratio of only 8.30, which compares with a mean of 23.12 for the S&P 500 companies. Balyasny Asset Management, founded by Dmitry Balyasny, reported owning 4.06 million shares of Euronav NV (NYSE:EURN) via its 13F filing for the latest quarter.
#4 Meritor Inc. (NYSE:MTOR)
– Shares Owned by Avenue Capital Group (as of September 30): 7.21 Million
– Value of Holding (as of September 30): $76.62 Million
Lasry did not touch his position in Meritor Inc. (NYSE:MTOR) during the September quarter, which remained comprised of 7.21 million shares as of September 30. In 2013, the global supplier of a wide product portfolio of integrated systems, modules and components to original equipment manufacturers implemented a three-year plan aimed at improving its EBITA margin, strengthening its balance sheet by reducing debt, and boosting revenue growth organically. Meritor’s stock performance over the past several years seems to suggest that the company’s management has been successful in implementing the aforementioned plan. However, the downturn in the global economy has put downward pressure on the company’s operations and stock performance in the past several months. The stock is down by 34% for the year, but it is still 33% in the green over the past two-year period. Larry Robbins’ Glenview Capital upped its stake in Meritor Inc. (NYSE:MTOR) by roughly 3% during the third quarter to 7.67 million shares.
#3 YRC Worldwide Inc. (NASDAQ:YRCW)
– Shares Owned by Avenue Capital Group (as of September 30): 5.87 Million
– Value of Holding (as of September 30): $77.88 Million
The New York-based hedge fund firm trimmed its position in YRC Worldwide Inc. (NASDAQ:YRCW) by 1.4 million shares during the September quarter. The shares of the trucking company are 26% in the red year-to-date, but the stronger-than-expected earnings it posted for the third quarter point to the fact that the company will finally post its first annual profit since 2007. YRCW’s adjusted earnings came to $99.1 million, compared with analysts’ estimates of $81.5 million. The transportation services company was able to deliver a stronger-than-expected bottom-line even though its operating revenue decreased year-over-year by $161.4 million to $1.25 billion, thanks to its efficient pricing strategy. The company is performing quite strongly amid a slowing global economy, so analysts have even greater expectations for the company’s future performance. Meanwhile, YRCW’s stock is trading at a forward P/E ratio of 9.49, well below the 17.48 ratio for the S&P 500 benchmark. Israel Englander’s Millennium Management owns 613,102 shares of YRC Worldwide Inc. (NASDAQ:YRCW) as of September 30.
#2 Gener8 Maritime Inc. (NYSE:GNRT)
– Shares Owned by Avenue Capital Group (as of September 30): 7.21 Million
– Value of Holding (as of September 30): $78.98 Million
Avenue Capital’s position in Gener8 Maritime Inc. (NYSE:GNRT) did not undergo any adjustments during the third quarter, accounting for 12.60% of the fund’s equity portfolio as of the end of September. The U.S-based provider of international seaborne crude oil transportation services, which completed its initial public offering of 15 million shares at $14.00 per shares at the end of June, has seen its shares decline by 27% since its IPO. The company is set to more than double its fleet capacity in the upcoming years, as it expects the delivery of 20 “eco” VLCC newbuildings equipped with fuel-efficient technology by 2017. Gener8 Maritime recently reported third quarter net income of $33.2 million, compared with a net loss of $14.3 million reported last year. It is also hard to overlook the company’s attractive trailing P/E ratio of 6.83, which might suggest that the market undervalues the company’s true potential. Howard Marks’ Oaktree Capital Management was the largest equity holder of Gener8 Maritime Inc. (NYSE:GNRT) in our database at the end of the third quarter, with 13.05 million shares.
#1 Houghton Mifflin Harcourt Co (NASDAQ:HMHC)
– Shares Owned by Avenue Capital Group (as of September 30): 4.29 Million
– Value of Holding (as of September 30): $87.09 Million
Marc Lasry’s hedge fund firm lowered its exposure to Houghton Mifflin Harcourt Co (NASDAQ:HMHC) by 450,000 shares during the September quarter. Even so, the stock still represents his largest equity holding as of September 30, accounting for 13.90% of his fund’s equity portfolio. The shares of the global learning company are slightly over 3% in the red for the year despite delivering a strong stock performance in the first half of the year. Just recently, the company reported third quarter net sales of $575.5 million, which increased by $24.5 million relative to the same period last year. This year-over-year lift is mainly attributed to the $82.3 million contribution from the recently-acquired EdTech business, which was in turn offset by lower sales in the company’s domestic education business. Glenn J. Krevlin’s Glenhill Advisors holds a 3.26 million-share position in Houghton Mifflin Harcourt Co (NASDAQ:HMHC) as of September 30.