Carlson Capital, managed by Clint Carlson, is a Texas-based hedge fund founded in 1993. The fund follows multiple strategies but focuses on understanding the people and philosophy behind a company in addition to its business prospects. The fund’s top picks at the end of the second quarter were Google Inc (NASDAQ:GOOG), Citigroup Inc (NYSE:C), and PNC Financial Services (NYSE:PNC). Carlson Capital doesn’t recommend or endorse any of the stocks or analysis in this article, and we have no relationship with the fund, but based on SEC filings these are our opinions of what they are thinking. Read on to see the fund’s largest reported positions at the end of the second quarter, according to its 13F, or compare them to previous filings.
The largest holding in Carlson’s portfolio was Google Inc (NASDAQ:GOOG). Google was a popular stock among hedge funds in the first quarter of 2012- it made our list of the ten most popular technology stocks for the set of investors that we track. Google Inc (NASDAQ:GOOG), perhaps being overshadowed by fellow technology companies such as Apple, Microsoft, and Amazon, has not done particularly well in the market this year and currently trades at a forward P/E of only 13 despite its cash-heavy balance sheet and dominant position as a search engine. The company reported double-digit revenue and earnings growth rates in its most recent quarter.
Citigroup Inc (NYSE:C), another hedge fund favorite (see Insider Monkey’s list of the top ten stocks among hedge funds), took the second spot in Carlson’s portfolio. The fund had owned 2.8 million shares of Citigroup Inc (NYSE:C) at the end of March and increased its stake to 3.9 million shares by the end of the second quarter- interestingly, the fund had cut its position in half over the course of the first quarter. We discussed Citigroup earlier this month- at trailing and forward earnings multiples of 8 and 6 respectively, it could be a good value play if an investor is willing to take global macro risks. Carlson seems to be such an investor.
Carlson’s third largest position was another bank, PNC Financial Services (NYSE:PNC). The fund held this position about constant, at 1.7 million shares, but its placement in the portfolio provides a further indication that the fund is bullish on financials. PNC isn’t as beaten down as Citigroup Inc (NYSE:C), but its forward P/E based on earnings estimates is still 9 despite a 2.6% dividend yield. It also trades at less than the book value of its equity. Fisher Asset Management also has a large position in PNC.
Calpine Corporation (NYSE:CPN) was another of Carlson’s top picks. The electric utility operates natural gas and geothermal power plants in the U.S. The fund reported a 5.3 million share position at the end of the second quarter, which was down from the 8 million in its portfolio at the end of March; therefore, while it is still one of the fund’s top positions Carlson may have been in the process of reducing its stake further. Calpine Corporation (NYSE:CPN) has underperformed the S&P 500 so far in 2012, though that is to be expected given the market’s rise and the stock’s beta of 0.6. Investors should also note that the utility does not pay a dividend.
Finally, Carlson reduced its position in American Tower (NYSE:AMT) by about a third, from 1.8 million shares to 1.2 million. The fund had initiated this position in the first three months of the year. American Tower owns communications sites which lease antenna space to the firm’s customers. The stock is priced for high growth- even on a forward basis its price-to-earnings ratio is 35, and its five-year PEG ratio is 2.5. While revenue growth has been good, earnings growth was negative in its most recent quarter compared to the same period in 2011 and the company missed earnings expectations by 70%.
All five of these stocks had been major Carlson holdings at the end of March, but over the course of the second quarter the fund moved more heavily into Google Inc (NASDAQ:GOOG) and the banks and away from the utility and telecom-related companies. We see this as an indication that the fund became more bullish over the course of the quarter.