According to our research based on our database of 13F filings, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy). We think that this is because small cap stocks tend to receive less attention from large institutional investors such as mutual funds as well as the financial media, and so hedge funds are more likely to uncover an undervalued (or overvalued) stock when looking in this valuation range. As a result we also like to take a brief look at individual managers’ small cap picks to see if any of their holdings might be hidden gems. Read on for our quick take on billionaire James Dinan’s York Capital Management’s five largest small cap holdings as of the end of March or see the full list of stocks the fund reported owning.
York increased the size of its position in Chemtura Corp (NYSE:CHMT), a specialty chemicals company with a market capitalization of $2.2 billion, by 73% to a total of 4.7 million shares. That valuation is high in terms of Chemtura Corp (NYSE:CHMT)’s trailing earnings, and while analysts expect earnings per share to increase significantly over the next year and a half (the forward P/E is 13) we are skeptical of their optimism. The stock is tied tightly to the overall economy, and as a result its beta is 2.7. Billionaire David Shaw’s D.E. Shaw reported owning 1.5 million shares in its own 13F (check out D.E. Shaw’s stock picks).
Even more dependent on macro factors is crane designer and manufacturer Manitowoc Company, Inc. (NYSE:MTW), given how cyclical construction activity tends to be; that stock’s beta is 4.1. Dinan was selling the stock during Q1, though he still owned 4.4 million shares as of the beginning of April. Manitowoc Company, Inc. (NYSE:MTW) has nearly doubled in the last year, and currently features trailing and forward P/Es of 23 and 12 respectively as the sell-side expects high earnings growth. Point State Capital, managed by Sean Cullinan and other alumni of billionaire Stanley Druckenmiller’s Duquesne Capital, bought 2.2 million shares in the first quarter of 2013.
