The recently-submitted 13F filing by billionaire Mason Hawkins‘ Southeastern Asset Management seems to suggest that the famed value-focused hedge wasn’t much upbeat about the US equities going into the third-quarter. According to the filing, Southeastern reduced its stake in 50% or 16 of its 32 holdings and sold its entire positions in four stocks during the second quarter, while it made additional purchases in only two stocks and initiated a stake in four stocks during that time.
However, a closer look at the filing revealed that in most of the stocks that the fund reduced its stake during the second quarter, it brought its holding down only marginally. That’s why the value of the fund’s portfolio didn’t see a notable change during second quarter and was worth $9.8 billion at the end of June, compared to $10.45 billion at the end of March. In this post, we will take a look at the five major bullish moves made by the Tennessee-based hedge fund during the second quarter and will try to decipher why Southeastern is betting on those stocks.
At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).
#5 Vipshop Holdings Ltd – ADR (NYSE:VIPS)
– Shares Owned by Southeastern Asset Management (as of June 30): 462,800
– Value of Holding (as of June 30): $5.17 Million
In terms of value, Vipshop Holdings Ltd – ADR (NYSE:VIPS) was the smallest holding of Southeastern Asset Management at the end of June despite the fund having increased its stake in the company by 62% during the second quarter. Shares of the Chinese online discount retailer have been highly volatile this year. In the period between late-June and mid-August they appreciated by over 50% and started trading in the green year-to-date. However, the stock has seen a notable correction since the company released its second-quarter results and is currently trading down by 8.5% year-to-date. Vipshop Holdings Ltd – ADR (NYSE:VIPS) reported EPS of $0.17 on revenue of $2.02 billion for its most recent quarter, compared to EPS of $0.14 on revenue of $1.50 billion a year earlier. In the period between April and June, the number of funds covered by us with holdings in Vipshop Holdings declined by 17 to 42 and the aggregate value of their positions fell by $275 million to $604.27 million.
#4 Seacor Holdings, Inc. (NYSE:CKH)
– Shares Owned by Southeastern Asset Management (as of June 30): 128,510
– Value of Holding (as of June 30): $7.45 Million
Seacor Holdings, Inc. (NYSE:CKH) made its debut in Southeastern Asset Management’s equity portfolio during the second quarter and was the fund’s 27th largest holding in terms of value. The company lost more than half of its market capitalization between January 2014 and January 2016. However, its stock has performed well in the last six months and is currently trading up by 12.38% year-to-date. On August 24, analysts at Stifel initiated coverage on Seacor Holdings, Inc. (NYSE:CKH)’s stock with a ‘Buy’ rating and a price target of $70. In their note, the analysts highlighted that the company is “making the most of a poor energy market,” and will likely be a consolidator in certain markets due to its insulated balance sheet, significant cash balance and diversified cash flow. Though the number of investors covered by us with long positions in Seacor Holdings remained unchanged at 31 during the second quarter, the aggregate value of their holdings in the company declined by $30 million to $696.94 million. Chuck Royce‘s Royce & Associates was one of the funds that lowered its stake in the company marginally during the second quarter, by 1% to 1.39 million shares.
#3 Franklin Resources, Inc. (NYSE:BEN)
– Shares Owned by Southeastern Asset Management (as of June 30): 2.56 Million
– Value of Holding (as of June 30): $85.55 Million
Moving on, Southeastern Asset Management boosted its stake in Franklin Resources, Inc. (NYSE:BEN) by 18% during the second quarter. Franklin Resources, Inc. (NYSE:BEN)’s stock is currently trading marginally down for 2016, but has lost over 35% since the beginning of 2015. The company currently pays a quarterly dividend of $0.18 per share, which translates into an annual dividend yield of almost 2%. On September 7, analysts at Credit Suisse released a note in which they stated that they think “the asset management industry, which was always very fragmented and highly profitable (with low capital intensity), will become much more concentrated over the next five years – especially in U.S. retail with BlackRock (NYSE:BLK) and Vanguard clear winners.” In their note, the analysts also mentioned that Franklin Resources, Inc. and Waddell & Reed Financial, Inc. (NYSE:WDR) could see the largest net flow impact from the new rule laid out by the U.S. Department of Labor (DOL). During the second quarter, the ownership of Franklin Resources, Inc. (NYSE:BEN) among funds covered by us inched up by one to 32, but the aggregate value of their holdings in it declined by $95 million to $1.81 billion. Billionaire Ken Griffin‘s Citadel Investment Group initiated a stake in the company during that period by purchasing 172,800 shares.
#2 Liberty Media Corporation – Series C Liberty Media (NASDAQ:LMCK)
– Shares Owned by Southeastern Asset Management (as of June 30): 8.3 Million
– Value of Holding (as of June 30): $157.53 Million
Liberty Media Corporation – Series C Liberty Media (NASDAQ:LMCK) was a new entrant in Southeastern Asset Management’s equity portfolio in the second quarter. The company has been in the news lately in relation with its plans to acquire a minority stake in Formula One. On September 8, Liberty Media Corporation put an end to rumors by announcing that it had agreed to acquire the iconic motorsport business in a deal that gives Formula One an enterprise value of $8 billion and an equity value of $4.4 billion. The company will first acquire a minority stake of 18.7% ‘with 100% sale subject to satisfaction of conditions.’ Though the stock of Liberty Media Corporation didn’t do much after the deal was announced, it has appreciated by almost 20% so far in 2016. During the second quarter, the popularity of the company among funds covered by us saw a significant decline with 20 funds reporting stakes as of the end of June, down by 15 on the quarter, while the aggregate value of their holdings slid by almost 82% to $443.05 million during the quarter.
#1 Ralph Lauren Corp (NYSE:RL)
– Shares Owned by Southeastern Asset Management (as of June 30): 2.74 Million
– Value of Holding (as of June 30): $245.24 Million
Ralph Lauren Corp (NYSE:RL) was the largest new stake initiated by Southeastern Asset Management during the second quarter. Shares of the luxury retailer saw a massive drop in February after the company reported its fiscal 2016 third-quarter numbers. However, the stock has recovered since then and is currently trading down by 7% year-to-date. According to some analysts, trading at a forward P/E of 17.74, Ralph Lauren Corp (NYSE:RL)’s stock is overvalued and the company will have to improve its financials considerably. On August 13, analysts at Cowen and Company reiterated their ‘Market Perform’ rating on the stock and raised their price target $101 from $98. The number of investors covered by us long Ralph Lauren Corp (NYSE:RL) inched up by two to 32 and the total value of their positions grew by 45% to $738.48 million during the second quarter.