Chimera Investment Corporation (CIM), Freeport-McMoRan Copper & Gold Inc. (FCX), Anacor Pharmaceuticals Inc (ANAC): What This $5 Billion Hedge Fund Has Been Buying

Every quarter, many money managers have to disclose what they’ve bought and sold, via “13F” filings. Their latest moves can shine a bright light on smart stock picks.

Today let’s look at Farallon Capital Management, founded by Thomas Steyer in 1986, and employing a bottom-up fundamental investing strategy.

The company’s reportable stock portfolio totaled $5.2 billion  in value as of June 30.

FARALLON CAPITAL

Interesting developments

So what does Farallon’s latest quarterly 13F filing tell us? Here are a few interesting details.

The biggest new holdings are Charter Communications and Smithfield Foods. Other new holdings of interest include Chimera Investment Corporation (NYSE:CIM). Chimera Investment sports a fat yield of 12%, but its payout has been shrinking and may continue to do so. It has taken on more risk than many of its brethren, and has had some trouble filing reports on time. With its stock in penny-stock territory, it just received an extension to continue its listing on the New York Stock Exchange. Some have questioned its hefty management fees. Chimera Investment Corporation (NYSE:CIM) may become less attractive if interest rates rise, or if Congress cancels favorable tax treatment for REITs. Its third quarter featured a slip in book value.

Among holdings in which Farallon Capital Management increased its stake were Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Anacor Pharmaceuticals Inc (NASDAQ:ANAC). Freeport McMoRan Copper & Gold, the world’s largest publicly traded copper producer, offers a sizable 4.1% dividend yield. It has been hurt by falling copper and gold prices, though its second quarter was encouraging, featuring estimate-topping earnings (and revenue a bit below expectations), along with cost cutting. The company newly purchased pair of oil-and-gas-producing companies has helped its performance lately. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s stock has been avoided by some, while others see it as undervalued, with its forward P/E ratio of 10. A promising development is Indonesia’s possible lifting of restrictions on exports of ore.

Anacor Pharmaceuticals Inc (NASDAQ:ANAC) has seen its stock surge more than 60% this year, in part on hopefulness over its onychomycosis drug tavaborole. Investors were delighted to see the CFO buying 50,000 shares recently, in a clear vote of confidence (after a 43,000-share buy in June). The company has other drugs in its pipeline, too, tackling conditions such as atopic dermatitis and psoriasis. These offer further growth potential if they eventually win FDA approval.

Farallon Capital Management reduced its stake in companies such as Kinder Morgan Inc (NYSE:KMI), a pipeline giant with a dividend yield of 4.2%. The company’s reputation hasn’t been helped by several leaks, but its last quarter was solid, in part because of the diversification of its businesses. Kinder Morgan Inc (NYSE:KMI) is looking to expand its capacity and capitalize on the boom in oil sands production, but some worry that it might be growing too aggressively and might not be able to sustain its dividend.