Billionaire Wilbur Ross’ Top Picks and New Positions

Billionaire Wilbur Ross Jr., widely known as a connoisseur of failed companies, has built his entire career around investing in distressed assets. The contrarian American billionaire is the Chairman and Chief Strategy Officer of New York-based WL Ross & Company, which is a wholly-owned subsidiary of Invesco Ltd. (NYSE:IVZ). Wilbur Ross, who has made a fortune betting on the Irish banking system and distressed assets in industries such as steel, textiles and coal, primarily seeks out businesses that underperform their operational and financial capabilities. He is a strong believer in the value investing principles laid out by Benjamin Graham and David Dodd. This is a strong reason for tracking his quarterly 13Fs, which surely disclose high-potential, fundamentally cheap stocks. That being said, the following article will discuss the top three equity holdings of the billionaire investor and the two new additions added to his highly concentrated portfolio during the fourth quarter of 2015.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

Wilbur Ross
Wilbur Ross
Invesco Private Capital (WL Ross)

Let’s begin our discussion with Wilbur Ross’ largest equity position at the end of December 2015, represented by Navigator Holdings Ltd (NYSE:NVGS). WL Ross & Company owned 21.86 million shares of Navigator on December 31 worth $298.44 million. The owner and operator of handysize liquefied gas carriers has seen its share price decline by 22% over the past year. The company’s fleet comprises 38 vessels, which include 11 newbuilding vessels that are scheduled for delivery by March 2017. Navigator Holdings Ltd (NYSE:NVGS)’s operating revenue for the nine months that ended September 30 totaled $236.6 million, up by $10.1 million year-over-year. The increase was mainly attributable to a higher weighted average number of vessels, which was partially offset by a reduction in fleet utilization and market instability that caused delays in decision making. The shares of Navigator are currently trading at eight-times expected fiscal 2016 earnings, below the forward P/E multiple of 15.75 for the S&P 500 Index. Clint Carlson of Carlson Capital LP owns 1.10 million shares of Navigator Holdings Ltd (NYSE:NVGS) as of December 31.

Billionaire Wilbur Ross holds nearly 4.26 million shares of Sun Bancorp Inc. (NASDAQ:SNBC) as of the end of 2015, which were valued at $87.84 million on December 31. The position did not incur any adjustments during the final quarter of 2015. Sun Bancorp operates as a bank holding company for national bank Sun National Bank. The holding company’s stock is up by 11% over the past 12 months and trades at a whopping forward P/E ratio of 28.77, which is significantly above the average of 10.70 for the Regional Banks sector. Sun Bancorp Inc. (NASDAQ:SNBC)’s net interest income for 2015 totaled $60.60 million, down from $77.95 million reported for 2014. However, the company’s asset quality has been strengthening over the past several quarters, as its non-performing loans held-for-investment decreased to $3.1 million on December 31 from $3.7 million on September 30 and $11.0 million on December 31, 2014. A total of five hedge funds in our system had stakes in the company at the end of December, amassing 30.20% of its outstanding common stock. Emanuel J. Friedman’s EJF Capital upped its stake in Sun Bancorp Inc. (NASDAQ:SNBC) by 2% during the December quarter, to 1.03 million shares.

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WL Ross & Company’s position in Cascade Bancorp (NASDAQ:CACB) was also unchanged during the October-to-December period, at 11.47 million shares, which were valued at $69.62 million on December 31. The Oregon-chartered, single bank holding company has seen its stock advance by 10% over the past year despite it having lost 11% since the beginning of 2016. The company had a great 2015 in terms of both financial and stock performance, considering that its loan growth reached 13.1% in 2015, while its deposit growth was 5.1%. Cascade Bancorp (NASDAQ:CACB)’s net income for 2015 totaled $20.6 million or $0.29 per share, up from $3.7 million or $0.06 per share reported for 2014. In the fourth quarter of 2015, the company announced an agreement to acquire 15 branches of Bank of America Corp (NYSE:BAC) in Oregon and southeast Washington, which account for $700 million in core deposits. The transaction is anticipated to close in the current quarter. The stock currently trades at 13-times expected fiscal year 2017 earnings, above the forward P/E multiple of 10.70 for the Regional Banks industry. Matthew Lindenbaum’s Basswood Capital reported owning 3.43 million shares of Cascade Bancorp (NASDAQ:CACB) through its latest 13F filing.

The contrarian billionaire acquired a new stake of 155,471 shares in Etsy Inc. (NASDAQ:ETSY) during the final quarter of 2015, which was worth $1.28 million at the end of the year. The shares of the marketplace of hand-crafted goods are down by 3% since the beginning of 2016 and trade significantly below their initial public offering price of $16.00. The company went public in April 2015, selling 13.33 million shares of common stock. Just recently, Etsy Inc. (NASDAQ:ETSY) reported its financial results for the fourth quarter and full 2015 year, posting Gross Merchandise Sales (GMS) of $2.39 billion for the year. GMS, which represents the value of all of the goods sold on the e-commerce site, reached $741.49 million in the fourth quarter, which marked an increase of 21.3% year-over-year. This growth was mainly attributable to a 15.5% year-over-year growth in active sellers and a 21.4% increase in active buyers. The company had roughly 1.6 million active sellers in 2015 and more than 24.0 million active buyers. Nonetheless, Etsy has posted quarterly losses for nine consecutive quarters. The hedge fund sentiment towards the stock was positive in the December quarter, as the number of smart money investors with stakes in the company grew to 13 from three quarter-over-quarter. Israel Englander’s Millennium Management also acquired a new stake in Etsy Inc. (NASDAQ:ETSY) during the fourth quarter, which comprised 1.85 million shares.

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Last but not least, WL Ross & Company added a 43,357-share stake in GoPro Inc. (NASDAQ:GPRO) to its portfolio during the final quarter of 2015, which was valued at $781,000 on December 31. The shares of the maker of mountable and wearable cameras have plummeted by 74% over the past 52 weeks, and are down by 35% in 2016 alone, so the stock had not yet found its bottom in the fourth quarter as Mr. Ross had perhaps projected. The action-camera maker reported revenue of $1.62 billion for 2015, up from $1.39 billion generated during 2014. Nonetheless, the company’s management acknowledged that its growth slowed in the second-half of 2015, which serves as the primary reason behind the company’s disappointing stock performance. GoPro management also recognized “the need to develop software solutions that make it easier for our customers to offload, access and edit their GoPro content”. The smart money sentiment towards the stock was negative in the fourth quarter, as the number of money managers tracked by our team with positions in GoPro Inc. (NASDAQ:GPRO) dropped to 18 from 25 quarter-over-quarter. John Griffin’s Blue Ridge Capital acquired a 1.13 million-share stake in GoPro Inc. (NASDAQ:GPRO) during the December quarter.

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Disclosure: None