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 Joel Greenblatt’s Gotham Asset Management. It’s of great interest to many investors because Greenblatt is the author of the well-regarded and best-selling The Little Book That Beats the Market and because his system of seeking out companies with high returns on capital and hefty earnings yields. His “Magic Formula” has many fans. As my colleague Morgan Housel has noted, “The simple formula absolutely destroys market averages over time. Greenblatt backs this up with considerable statistical evidence.”
The company’s reportable stock portfolio totaled $2.3 billion in value as of June 30, 2013.
So what does Gotham’s latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are Salix Pharmaceuticals and Werner Enterprises. Other new holdings of interest include Pinnacle Foods, a recent IPO with a strategy of “Reinvigorating Iconic Brands” and a new dividend, yielding about 2.6%. The company has a significant debt load, but it also has a strong brandlineup, featuring brands such as Birds Eye, Aunt Jemima, Hungry-Man, Van de Kamp’s, Armour, Lender’s, Mrs. Paul’s, Vlasic, Log Cabin, Mrs. Butterworth, and Duncan Hines. It just bought Wish-Bone salad dressing for $580 million, too. In Pinnacle’s second quarter, revenue dropped 3%, with management noting, “We delivered another quarter of strong earnings growth as we expanded gross margins through effective productivity programs and ongoing improvement in product mix.”
Among holdings in which Gotham Asset Management increased its stake was Edwards Lifesciences Corp (NYSE:EW), a heart-valve maker. The stock got a boost recently when Japan announced that it would reimburse patients for Edwards Lifesciences Corp (NYSE:EW)’s SAPIEN XT valves. The company’s second quarter featured results that exceeded expectations on solid sales of its Sapien valve. Revenue rose 7%, while EPS surged 44%. It does face competition, though, such as from Medtronic, which is more than six times its size. Bulls like Edwards Lifesciences Corp (NYSE:EW)’ devices permit the avoidance of more invasive procedures or open-heart surgeries.
Gotham Asset Management decreased its stake in Permian Basin Royalty Trust (NYSE:PBT), which has seen its top and bottom lines shrink a bit in recent years. The stock yields 7.9%, though, is paid monthly, and has risen in recent years. Its fortunes are tied to energy-producing properties in Texas, and to the prices of oil and gas.