Zach Schreiber’s PointState Capital is among the 500-plus mega-funds that we track at Insider Monkey, and with six former Duquesne Capital portfolio managers, this is really the new Duquesne minus Stan Druckenmiller. Seeing as the fund has recently filed its first-quarter 13F with the SEC, we’re going to take a look at some of the top stocks it was positioning itself in for the start of Q2. Regular investors have beaten the market by piggybacking the right kind of hedge fund sentiment, so it’s worth paying attention; discover the secrets of this strategy.
Number one
The fund reported a $384.3 million stake of 13,724,433 shares in the energy company Cheniere Energy, Inc. (NYSEMKT:LNG), up from the previous quarter, when the fund held 13,670,333 shares, worth about $256.7 million. Shares are up more than 60% year to date, on the back of investor optimism surrounding Cheniere Energy, Inc. (NYSEMKT:LNG)’s bright future in the natural gas exports arena. We’ve written about PointState’s love of this stock before, and while many analysts called bullishness speculation last year, now, we’ve come a lot closer to game time, so to speak.
The U.S. DoE recently gave a conditional export approval to ConocoPhillips (NYSE:COP)’s and The Dow Chemical Company (NYSE:DOW)’s Freeport LNG terminal, making the approval held by Cheniere Energy, Inc. (NYSEMKT:LNG)’s Sabine Pass terminal look even sweeter. Sabine’s extremely close proximity to the Gulf (less than five miles!) is one advantage that the company will have when it goes operational in 2015, and low transportation costs will be a boon to Cheniere Energy, Inc. (NYSEMKT:LNG)’s bottom line. Keep this in mind; it will be a theme of another stock in PointState’s top five.
The best of the rest
The second most-valuable holding stated in the 13F is News Corp (NASDAQ:NWSA). As of March 31, 2013, the hedge fund held 9,567,440 shares worth $291.9 million, up from $145.5 million one quarter earlier. Like Cheniere Energy, Inc. (NYSEMKT:LNG), News Corp (NASDAQ:NWSA) has returned double-digits in 2013, as Mr. Market has been anticipating the media giant’s spinoff this summer. Like most spinoff scenarios, the company initiating the move (News Corp) will be viewed as the lower-growth investment post-split, in comparison to the spun off entity (21st Century Fox), which will hold the higher-growth film and TV assets. It’s unclear which arm PointState will be interested in after the move, but we’ll keep you posted of any updates to this situation.
CBS Corporation (NYSE:CBS) has also made the list, with PointState holding a stake of 4,669,760 shares worth $218 million at the end of the quarter, up from $9.5 million one quarter earlier. Up more than 30% year-to-date, CBS Corporation (NYSE:CBS)also has spinoff plans of its outdoor advertising segment, and after selling its Asian and European assets; the remaining U.S. business will be spun into a REIT. The exact details of such a transaction are not known, but it’s quite possible that existing CBS Corporation (NYSE:CBS) shareholders could receive a one-to-one share transfer, in addition to a special dividend of some kind; either scenario would warrant PointState’s investment dollars, and the markets generally agree.
The recent 13F also has PointState holding 3,934,302 shares of ADT Corp (NYSE:ADT), valued at $192.6 million. Though it is down by more than 11% in 2013, ADT has potential moving forward. The company is in the midst of the early phase of its $2 billion buyback, and its presence in the home security space is a net positive as the housing market continues to rebound. ADT’s mobile-linked security system, Pulse, has finally started to reward the company’s bottom line, as recent financials indicate subscriber penetration rates are improving. These factors, in combination with a particularly undervalued cash hoard—at 9 times free cash flow—should give bulls enough of a reason to sleep at night.
Finally, we come to HollyFrontier Corp (NYSE:HFC); the fund reported a position of 3,465,995 shares worth $178.3 million as of March 31, 2013, up from 2,179,014 shares, worth $280.5 million at the end of 2012. A forward P/E near 8 times year-ahead earnings, HollyFrontier is abnormally cheap. Like Cheniere Energy, Inc. (NYSEMKT:LNG), a key advantage that HollyFrontier has on the profitability front is location. With oil refineries primarily in the Western U.S., HollyFrontier’s operations are closer to shale reserves in states like California, Colorado and North Dakota in comparison to peers that operate in the Gulf—lower transportation costs.
It remains to be seen how natural gas exportation might affect HollyFrontier in the long-term, but it’s worth noting that Wall Street sees upside of 20% from current levels. Shares have already popped 75% over the past year.
Final thoughts
In short, each of the top positions in PointState’s 13F portfolio is driven by a factor that’s unique to each company. With energy players Cheniere Energy, Inc. (NYSEMKT:LNG) and HollyFrontier, investors can snatch up companies that look set to face lower costs than their peers in the coming years, while CBS Corporation (NYSE:CBS) and News Corp (NASDAQ:NWSA) are two attractive media spinoff situations. The former’s REIT adventure looks a bit more beneficial, though we’ll be watching 21st Century Fox as well. ADT is more of a pure investment play, but even it has a bullish buyback program driving some market participants to get in on the action.
Disclosure: none
