Criteo SA (ADR) (CRTO), DDR Corp (DDR): Take A Look At HG Vora Capital’s New Stock Picks

Parag Vora founded his hedge fund HG Vora Capital in 2009 and is currently the fund’s portfolio management. Prior to launching his own firm, Mr. Vora served as a senior investment professional at Silver Point Capital, focusing on credit and distressed situations. He joined Silver Point from The Goldman Sachs Group, where he served at the Real Estate Investment Banking division.

Mr. Vora took his experience from Silver Point and Goldman Sachs to HG Vora and for a while his fund was focusing on real estate. In 2014, HG Vora was heavily betting on Real Estate Investment Trusts and then switched to gaming, while lately, the fund has been focusing on communications. Mr. Vora was in the spotlight in 2014 due to his bet on Pinnacle Entertainment Inc (NASDAQ:PNK) and because he formed an activist group with PW Partners Atlas Fund and went after Town Sports International Holdings, Inc. (NASDAQ:CLUB), obtaining several board seats in the process.

The fund’s bets on the aforementioned companies paid off very well last year. We assess the fund’s performance by calculating the weighted average returns in companies with a market cap above $1.0 billion as disclosed in quarterly 13F filings. According to our calculations, HG Vora’s picks returned 71% in 2017. Pinnacle Entertainment Inc (NASDAQ:PNK)’s stock surged by 125.72% last year and the fund closed the stake during the fourth quarter amid the company announcing that it would be acquired by Penn National Gaming, Inc (NASDAQ:PENN) in a $2.8 billion cash-and-stock deal. Back in 2014, Mr. Vora talked about Pinnacle Entertainment Inc (NASDAQ:PNK) during an interview with Bloomberg at the Robin Hood Conference. The investor said at the time that Pinnacle had the potential to reach a free cash flow of around $5 per share in the following five years and could reach $50 per share by 2018. The stock is currently trading at around $30.45 per share, but it still gained over 176% since it moved to NASDAQ in April 2016.

Parag Vora - HG Vora Capital

Penn National Gaming, Inc (NASDAQ:PENN), which bought Pinnacle Entertainment Inc (NASDAQ:PNK), had also been a large position in HG Vora’s equity portfolio until the fourth quarter, during which the investor slashed the stake by 69% to 1.83 million shares worth $57.18 million. Penn National Gaming, Inc (NASDAQ:PENN)’s stock also appreciated by 127% during 2017. Town Sports International Holdings, Inc. (NASDAQ:CLUB) is another winning pick in HG Vora’s equity portfolio as it gained 124% last year, but it’s still in the red since April 2014, when the fund initiated its stake.

Following funds like HG Vora can be very useful, since we can imitate some of their stock picks. At Insider Monkey, we have developed a strategy that takes imitating hedge funds to another level, by taking into account the stock picks of some of the best-performing hedge funds.  Our methodology identifies the best small-cap stocks that the best-performing hedge funds are collectively bullish on and this approach has helped us beat the market by over 20 percentage points since the strategy was launched in May 2014. In our quarterly newsletters we share the stock picks from our small-cap strategy. In addition, we also have a monthly activist newsletter that focuses on one activist fund each month and presents the best ways to imitate it.

With this in mind, let’s take a closer look at HG Vora’s equity portfolio and some of its stock picks

In its latest 13F filing, HG Vora disclosed an equity portfolio worth $953.16 million, up from $740.50 million a quarter earlier. The fund made some significant changes during the first quarter. For one, it expanded the portion of communications stocks to 53% from 39% and reduced its bets on casino stocks by removing the position in Pinnacle Entertainment Inc (NASDAQ:PNK) and cutting the stake in Penn National Gaming, Inc (NASDAQ:PENN). The increased exposure to the communications sector is due to the fund boosting its stake in Zayo Group Holdings Inc (NYSE:ZAYO) by 80% to 2.25 million shares worth $82.80 million. HG Vora also initiated a stake in Criteo SA (ADR) (NASDAQ:CRTO) during the fourth quarter and amassed 3.10 million shares valued at $80.69 million. Together with Sinclair Broadcast Group Inc (NASDAQ:SBGI), which represents HG Vora’s largest holding, Zayo Group Holdings Inc (NYSE:ZAYO) and Criteo SA (ADR) (NASDAQ:CRTO) are the fund’s three largest holdings in terms of value.

HG Vora’s bet on Criteo SA (ADR) (NASDAQ:CRTO) has already paid off pretty well, as the stock is up by 18% since the beginning of the year. Most of the gains came on the back of the French digital performance marketing company reporting its fourth-quarter results. Criteo SA (ADR) (NASDAQ:CRTO) posted EPS of $1.21, beating the consensus estimate of $0.93, while its revenue of $276.94 million increased by 23% on the year and topped expectations by $14.74 million. For the current quarter, Criteo SA (ADR) (NASDAQ:CRTO) forecasts revenue between $230 million and $235 million, versus a consensus estimate of $204.6 million.

At the end of 2017, there were nine funds tracked by us long Criteo SA (ADR) (NASDAQ:CRTO), down by one fund over the quarter.

On the other hand, DDR Corp (NYSE:DDR), in which HG Vora also initiated a stake during the fourth quarter, saw its stock drop by over 17% since the beginning of 2018. DDR Corp (NYSE:DDR) is a self-administered and self-managed REIT that operates shopping centers and loan investments. The company posted operating FFO of $0.28 per share for the fourth quarter, down from $0.30 a year ago, but slightly better than the consensus estimate of $0.26. Its revenue of $209.32 million declined by 10% on the year and beat the estimates by $1.68 million. The company also reported flat same-store net operating income in 2017 and expects it to inch up by 1.5% this year. One catalyst for DDR Corp (NYSE:DDR) that investors have to look forward to is the spin-off of a portfolio of 50 assets into an independent publicly-traded REIT announced in December. After the transaction is completed, DDR Corp (NYSE:DDR) will continue to operate 236 high-growth US assets with top-tier demographics, while the new REIT, known as Retail Value Trust will include 38 continental US assets and the entire Puerto Rico portfolio of 12 assets, and will focus on operations and private market sales of its assets.

During the fourth quarter, the number of investors in our database increased by one to 23.

Disclosure: none