Billionaire Michael Price’s Conviction Stocks For Q4

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MFP Investors is a New York-based activist hedge fund founded by billionaire Michael Price in 1998. Mr. Price started his career at Heine Securities in 1975 and by 1988 became the sole owner of the firm. In 1996 he sold Heine Securities to Franklin Securities for $670 million. Mr. Price is considered by many to be one of the best value investors of the current generation, though apart from using value investment principles, MFP Investors also uses contrarian investment strategies. MFP Investors recently submitted its 13F filing with the SEC for the reporting period of September 30. According to the filing, the value of the fund’s U.S equity portfolio at the end of September was around $670 million, which was 13.4% lower quarter-over-quarter. The filing also revealed that MFP Investors’ equity portfolio saw a relatively benign 20% quarter-over-quarter turnover during the period, showing that Price did not panic in the face of the market turbulence that characterized the period. Since Mr. Price’s value investment picks have a history of outperforming the overall market, we will discuss his top five stock picks going into the fourth quarter in detail below.

But first let’s understand why we at Insider Monkey track hedge fund activity. From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 38 month period beginning from September 2012, returning 102% (read the details here).

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#5 Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)

 – Shares Owned by MFP Investors (as of September 30): 440,300

 – Value of Holding (as of September 30): $24.86 Million

Though MFP Investors didn’t make any changes to its stake in Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) during the third quarter and the stock of the company lost almost 4% during the same period, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) still jumped two places quarter-over-quarter to become the firm’s fifth-largest equity holding by the end of September. Another interesting thing that happened with regards to the company during the third quarter was that although the number of hedge funds covered by Insider Monkey that disclosed stakes in Teva Pharmaceutical Industries Ltd came down to 70 from 77, the aggregate value of hedge funds’ holdings in the company increased to $6.8 billion from $4.26 billion during the same period, a significant increase given the aforementioned share price decline. In July, the Israel-based pharmaceutical behemoth announced that it would be acquiring Allergan PLC (NYSE:AGN)’s generics business for $40.5 billion. This morning, reports emerged that the company would be selling $6.75 billion worth of ordinary and preferred shares to finance the deal for Allergan’s generics business, and other acquisitions. Andreas Halvorsen‘s Viking Global initiated a huge stake in Teva during the third quarter, purchasing over 8.8 million shares of it.

#4 Hess Corp. (NYSE:HES)

 – Shares Owned by MFP Investors (as of September 30): 630,000

 – Value of Holding (as of September 30): $31.54 Million

Shares of Hess Corp. (NYSE:HES) suffered a massive slump of nearly 25% during the July-to-September period, but MFP Investors largely held on to its conviction in the stock and sold only a paltry 12,500 shares of the company during that time. Though shares of the integrated oil and natural gas company have recovered in the fourth quarter, they still trade down by 20% year-to-date. For the third quarter, Hess Corp. reported a per share loss of $1.03 on revenue of $1.69 billion. Analysts had expected the company to report a per share loss of $1.20 on revenue of $1.67 billion. On November 17, analysts at Oppenheimer downgraded the stock to ‘Market Perform’ from ‘Outperform’, while their price target remain unchanged at $70. Among the 41 hedge funds covered by us that disclosed having a stake in Hess Corp. (NYSE:HES) at the end of September was David M. Knott‘s Dorset Management, which owned 200,000 shares of the company.

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