Amid a broader market decline witnessed last year, many smart money investors registered substantial losses. Among them was billionaire Richard Perry‘s Perry Capital, whose equity portfolio lost 20.2% last year, based on our analysis of its long positions in companies with market caps above $1.0 billion. Hence, it wasn’t a surprise when Perry Capital revealed in its recently-submitted 13F filing with the Securities and Exchange Commission (SEC) that it made a number of changes in its portfolio during the fourth quarter. According to the filing, Perry Capital’s US equity portfolio had a turnover of 78.57% during the October-December period and its top five equity holdings amassed over 68% of the equity portfolio value at the end of December. In this post, we are going to focus on five stocks that represent Perry Capital’s largest bets.
We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points in our backtests that covered the period between 1999 and 2012 (see the details here).
#5 HCA Holdings Inc (NYSE:HCA)
– Shares Owned by Perry Capital (as of December 31): 3.06 million
– Value of Holding (as of September 30): $207.15 million
HCA Holdings Inc (NYSE:HCA) was a new entrant in Perry Capital’s portfolio during the fourth quarter. Shares of the health care services company jumped after it reported better-than-expected numbers for the fourth quarter, but is still trading 2.40% in the red year-to-date. The company reported EPS of $1.69 on revenue of $10.25 billion, compared to EPS of $1.33 on revenue of $9.64 billion it had reported for the fourth quarter of fiscal 2014. On February 1, analysts at Mizuho reiterated their ‘Buy’ rating on the stock and increased their price target to $102 from $80. David Tepper‘s Appaloosa Management was among the hedge funds that increased its stake in HCA Holdings Inc (NYSE:HCA) by 27% during the fourth quarter; it held over 4.5 million shares of the company at the end of December.
#4 Williams Companies Inc (NYSE:WMB)
– Shares Owned by Perry Capital (as of December 31): 8.06 million
– Value of Holding (as of September 30): $207.28 million
After having declined by over 50% during the second-half of 2015, Williams Companies Inc (NYSE:WMB)’s stock has declined by another 48% since the beginning of the year. Nevertheless, the stock sports a dividend yield of 19% following the drop. One of the reasons for the stock’s fall this year is the rumors that Chesapeake Energy Corporation (NYSE:CHK) might file for bankruptcy, which were later dismissed by the company. Investors fear that if Chesapeake Energy Corporation(NYSE:CHK) goes down, it will be detrimental for Williams Companies Inc (NYSE:WMB)’s pending merger with Energy Transfer Equity LP (NYSE:ETE). Moreover, they are also concerned that the processing and transportation contracts between Williams Companies and Chesapeake Energy Corporation might be at risk if the latter is indeed on the verge of bankruptcy. While Perry Capital reduced its stake in Williams Companies by 3% during the fourth quarter, John A. Levin‘s Levin Capital Strategies cut its position in the company by 45% to 1.57 million shares.
#3 Ball Corporation (NYSE:BLL)
– Shares Owned by Perry Capital (as of December 31): 2.97 million
– Value of Holding (as of September 30): $216.35 million
Amid a 17% rise in Ball Corporation (NYSE:BLL)’s stock during the fourth quarter, Perry Capital reduced its stake in the company by 14%. Even though Ball Corporation (NYSE:BLL)’s stock has given up more than half of those gains this year as it has declined by 10.4% year-to-date, it is still trading comfortably above the sub-$60 level. On January 18, the company revealed that European regulators have given a green light to acquire Rexam PLC. For the fourth quarter, Ball Corporation reported EPS of $0.80 on revenue of $1.81 billion versus analysts’ expectations of EPS of $0.75 on revenue of $1.94 billion. On January 29, analysts at Jefferies Group reiterated their ‘Buy’ rating on the stock, while lowering their price target to $83 from $87. Doug Silverman and Alexander Klabin’s Senator Investment Group increased its stake in Ball Corporation by 10% to 3.85 million shares during the October-December period.
#2 American International Group Inc (NYSE:AIG)
– Shares Owned by Perry Capital (as of December 31): 5.76 million
– Value of Holding (as of September 30): $357.37 million
Moving on, in American International Group Inc (NYSE:AIG) the fund reduced its holding by 40% during the fourth quarter. After declining gradually since the start of 2016, shares of American International Group Inc (NYSE:AIG) have spiked recently – in spite of reporting dismal numbers for the fourth quarter – and are now trading down by 14.47% year-to-date. While analysts anticipated a loss of $0.93 per share for the quarter, it reported a loss of $1.10 per share. However, the company has also prevented a proxy fight against activist investor Carl Icahn, who owns 42.75 million shares of the company, by agreeing to add his nominee Samuel Merksamer to its board of directors in May. In addition, AIG will add activist John Paulson to the board. John Paulson’s Paulson & Co reported ownership of 14.60 million shares of AIG in its 13F filing for the third quarter.
#1 Ally Financial Inc (NYSE:ALLY)
– Shares Owned by Perry Capital (as of December 31): 22.60 million
– Value of Holding (as of September 30): $421.35 million
Finally, Ally Financial Inc (NYSE:ALLY) emerged as Perry Capital’s top stock pick at the end of the fourth quarter. The slow and gradual decline that Ally Financial Inc (NYSE:ALLY)’s stock started in August last year has continued this year, trading down by nearly 12.5% year-to-date. For the fourth quarter, the company reported adjusted EPS of $0.52, compared to adjusted EPS of $0.40 it delivered a year earlier. According to analysts, the fall of Ally Financial’s stock in the past few months has made it very cheap at current levels. At its current market price, the company is trading at a forward price-to-earnings multiple of only 6.24 and price to book multiple of only 0.60. The fact that 18 of the 19 prominent analysts that cover the stock currently have a ‘Buy’ rating supports the bullish sentiment towards the stock. Emanuel J. Friedman‘s EJF Capital reduced its stake in the company by 73% to 3.38 million shares during the fourth quarter.