Paul Singer founded Elliott 35 years ago, and the fund’s success over that time- including as it has increased in size- has made him a billionaire and helped Elliott be one of the longest-tenured hedge funds still under the same management. Last month, the fund filed its 13F, disclosing many of the long equity positions it owned at the end of the third quarter of 2012. We have compared the 13F for the third quarter to the one for the quarter ending in June and picked out five of the largest new positions in Elliott’s portfolio to see if they might still make for good values. Read on for our quick take on these stock picks or see the rest of the stocks Elliott likes.
One of Singer’s ten favorite stocks was France Telecom SA (NYSE:FTE), a $29 billion market cap telecommunications company. A 29% decrease in the stock price over the last year has brought its trailing P/E multiple to 6, though earnings have been down and the sell-side expects net income to continue to decrease in 2013. At first glance the dividend yield look high, but payments seem to be inconsistent and likely exposed to changes in exchange rates. Income investors might want to look further, but in general we don’t think that it’s a good stock to buy.
The fund also liked Reed Elsevier NV (NYSE:ENL), initiating a position of 4.4 million shares. The $11 billion market cap publishing company- which gets a considerable amount of business from publishing scientific and technical books and journals- may be better suited to handle changes in the industry than other peers which are more consumer facing. Reed Elsevier trades at 15 times trailing earnings and 11 times forward earnings estimates. It might be worth investigating further.
American Capital Agency Corp. (NASDAQ:AGNC), a $10 billion market cap real estate investment trust which invests in residential mortgage securities, was another of Elliott’s new picks as the fund reported a position of 3.1 million shares. The dividends have been strong recently compared to the stock price, though American Capital did cut its dividend payment at the beginning of this year. The yield is still good, and Elliott wasn’t the only hedge fund to like the stock during the third quarter as Renaissance Technologies- whose success has made founder Jim Simons a multi-billionaire- bought over 2 million shares of the stock (see more of Renaissance’s stock picks). Again, income investors may want to consider it.
Another REIT, Chimera Investment Corporation (NYSE:CIM), also made its debut at Elliott during the third quarter. The yield is good here as well, but dividend payments have been coming down: 9 cents per share in September 2012, 13 cents the year before that, and 18 cents the year before that. Chimera is more diversified than American Capital Agency, and so its assets include not only residential mortgage securities but also commercial mortgage loans. We suppose that it too is an intriguing income opportunity if the dividend payments stay constant or fall only slightly going forward.
Singer also liked NetApp Inc. (NASDAQ:NTAP), buying 500,000 shares of the data storage software and services company. NetApp was also one of billionaire George Soros’s picks for the quarter; he increased his holdings by 35%, making it one of his top five stock positions by market value (check out Soros’s favorite stocks). NetApp’s earnings dropped 34% in the third quarter of the year compared to the same period in 2011, which has contributed to a fairly high trailing P/E of 26, but Wall Street analysts think that the company will recover next year. Their forecast for 2013 implies a forward P/E of only 13. We think that we’d rather not rely on that that degree of improvement, and so would avoid the stock.