David M. Knott’s Dorset Management seems to have had an excellent start to the year. Knott’s 55 picks from its 13F portfolio in companies with a market capitalization of over $1.0 billion at the end of 2014, mainly companies from the energy, healthcare and finance sectors, returned 11.6% in the first quarter of 2015 compared to the S&P 500 Index ETF (SPY), which inched up by 0.9% during the same period. The first five companies from Dorset Management in which the fund owns the largest long positions are Ligand Pharmaceuticals Inc. (NASDAQ:LGND), Pfizer Inc. (NYSE:PFE), Anadarko Petroleum Corporation (NYSE:APC), Schlumberger Limited. (NYSE:SLB), and Cimarex Energy Co (NYSE:XEC). These stakes amass 37.86% of its total equity portfolio value of $424.2 million, and delivered weighted average returns of 13.06% during the first quarter of 2015. The large portfolio allocation of the five largest positions shows that Dorset’s portfolio is not very diversified, reflecting the fact that the investor is relying on specific sectors that proved to be more profitable, in this case the energy and healthcare sectors.
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Ligand Pharmaceuticals Inc. (NASDAQ:LGND) is a biotechnology company that represents the largest holding in Dorset Management’s equity portfolio, the stake amassing 1.25 million shares valued at $66.50 million at the end of 2014, equal to 15.67% of the portfolio. Having the highest performance among the five analyzed long positions, the stock had an amazing return of 44.91% during the first three months of 2015, amid posting a revenue of $65 million 2014. In addition to the latest positive tendencies in the biotechnology sector of reaching new highs and the stock’s significant appreciation, analysts currently have a consensus price target of over $93.40 for Ligand Pharmaceuticals Inc. (NASDAQ:LGND), more than 10% upside with shares currently trading at $84.43. Mark Lampert’s Biotechnology Value Fund is another shareholder of Ligand Pharmaceuticals Inc. (NASDAQ:LGND), disclosing 860,100 shares in its latest 13F.
David Knott’s stake in Pfizer Inc. (NYSE:PFE) remained unchanged during the last quarter of 2014, comprising around 1.16 million shares valued at $36.11 million, representing 8.51% of the portfolio. Pfizer Inc. (NYSE:PFE)’s stock advanced by 12.66% during the first three months of the year, being the second-best performer in the lot. Citing the latest news, it seems that Mylan NV (NASDAQ:MYL) has come to an agreement regarding Viagra patent prosecution with Pfizer Inc. which allow it to launch its own generic version of the drug before Pfizer’s Viagra patent expires in 2020. Being a top leading drug for Pfizer Inc. (NYSE:PFE) ever since 1998, when it was approved by the US FDA, Viagra holds a dominant position of 45% share in the market of sexual dysfunction, generating sales of $1.3 billion in the last year. The value of the settlement is not known yet. Despite not having the exclusive patent for Viagra in the near future and considering the increased competition among generic drug producers, nevertheless Pfizer remains one of the top gainers among stocks with a market capitalization of over $100 billion. One of the long-term shareholders of Pfizer Inc. (NYSE:PFE) is Ken Fisher’s Fisher Asset Management, which owns close to 31.20 million shares according to its latest 13F filing.
Given the latest challenges on the petroleum market in 2014, a particular focus will be given to the next three largest positions in Knott’s fund. As we can notice from the 13F sector allocation Dorset Management has significant exposure to the energy sector, reflecting an allocation of 61% in companies operating in energy at the end of 2014. Its stake in Anadarko Petroleum Corporation (NYSE:APC) amasses 294,600 shares, valued at $24.31 million and equal to 5.72% of the hedge fund’s value. Anadarko Petroleum Corporation’s stock increased by 0.71% during the first three months of 2015, the modest return being affected by posted revenues of $3.18 billion, down by 5% on the year and a net loss of $0.78 per share, versus a loss of $1.53 per share a year earlier. However, the company is expected to recover due to a recent oil discovery that has been made at the Yeti prospect, where the petroleum company has a 37.5% stake in Statoil ASA (ADR) (NYSE:STO)’s Yeti operation. Furthermore, Anadarko Petroleum Corporation (NYSE:APC) remains the favorite energy stock among billionaire fund managers with 11 billionaires reporting long positions with an aggregate value of $1.63 billion. Ken Griffin’s Citadel Investment Group is one of the largest shareholders in Anadarko Petroleum Corporation as it reported holding 4.92 million shares, followed by another significant investor of the company Paul Singer‘s Elliot Management, which owns 4.62 million shares.
The stock of Cimarex Energy Co (NYSE:XEC) had the highest growth among the petroleum companies that are analyzed in this article, delivering a return of 8.74% in the first quarter of 2015. 150,000 shares of the company were held by Dorset Management, comprising a market value of $15.9 million, the stake representing 3.74% of its equity portfolio. Cimarex Energy Co (NYSE:XEC) has received a “BBB-” credit rating from Morningtar, which implies that the company has a moderate default risk. The two largest stockholders of Cimarex Energy Co (NASDAQ:FSRV) in our database as of the end of 2014 are Charles De Vaulx’s International Value Advisers with 3.34 million shares, and Ric Dillon’s Diamond Hill Capital with 3.11 million shares.
Another energy stock in Dorset’s equity portfolio is Schlumberger Limited. (NYSE:SLB), which lost 1.73% during the first quarter, but gained some ground in the last couple of weeks. Dorset reported ownership of 210,000 shares of Schlumberger, valued at $17.94 million, according to its latest 13F filing. The company reported its financial results for the first quarter on Thursday, with revenue declining by 8.8% on the year to $10.25 billion and profit down to $0.76 per share from $1.21 per share a year earlier. Moreover, Schlumberger Limited. (NYSE:SLB) announced plans to lay-off 11,000 workers, in addition to 9,000 that have been cut earlier this year. Ken Fisher, Ken Griffin, and Jim Simons are three of five billionaires that reported long positions in the company during the previous round of 13F filings.
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