Five Stocks Locust Wood Capital Added to Its Equity Portfolio

Locust Wood Capital LP is a New York-based investment management firm founded by Wall Street veteran Stephen J. Errico in July 2002. Mr. Errico had previously served as a successful adviser at Lehman Brothers, Paine Webber and Morgan Stanley. Locust Wood was launched with $29 million in capital and currently deploys approximately $1.1 billion for its limited partners.

The New York-based asset manager predominantly seeks to invest in companies undergoing significant corporate transformations. Precisely, Mr. Errico’s investment firm attempts to capitalize on mispriced corporate changes. Locust Wood Capital LP also hedges its exposure to capital markets by holding cash, employing derivatives and selling short securities. Moving on to the asset manager’s recent performance, Locust Wood posted a negative net-of-fees return of 1.75% for the first quarter and a loss of 1.00% for the second quarter. Despite the rather disappointing performance, Mr. Errico and his team believe the performance of their portfolio will improve in the foreseeable future, as they “see a very wide discount between the current market price of our portfolio and its intrinsic value”. Without further ado, let’s have a look at five new equity positions added to Locust Wood’s portfolio during the June quarter.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

#5. Hewlett Packard Enterprise Co (NYSE:HPE)

– Shares owned by Locust Wood Capital LP as of June 30: 828,495

– Value of Locust Wood Capital LP’s holding as of June 30: $15.14 Million

Locust Wood Capital LP acquired a new stake of 828,495 shares of Hewlett Packard Enterprise Co (NYSE:HPE) during the second quarter of 2016, which was valued at $15.14 million on June 30. The new position accounted for 1.7% of the hedge fund’s entire portfolio. Hewlett Packard shares have gained an impressive 38% since the beginning of 2016, partially reflecting fresh rumors about a group of private equity firms being interested in buying the enterprise technology company in a possible $40 billion-plus deal. KKR & Co., Apollo Global Management LLC and Carlyle Group LP are “sniffing around” Hewlett Packard, according to fresh media reports. However, Reuters reports that various private equity buyers are considering “acquiring some software assets” the company has been planning to divest, “worth between $6 billion and $8 billion, rather than the entire company”. In response, analysts at Wells Fargo reiterated their ‘Outperform’ rating on Hewlett Packard and raised their valuation range to $23-to-$25 from $20-to-$22, saying that a buyout represents a likely possibility. Andy Redleaf’s Whitebox Advisors owns 929,325 shares of Hewlett Packard Enterprise Co (NYSE:HPE) as of June 30.

#4. Antero Resources Corp (NYSE:AR)

– Shares owned by Locust Wood Capital LP as of June 30: 613,890

– Value of Locust Wood Capital LP’s holding as of June 30: $15.95 Million

The New York-based asset manager added a 613,890-share position in Antero Resources Corp (NYSE:AR) to its pool of holdings during the April-to-June quarter, which was worth $15.95 million on June 30. The independent oil and natural gas company engaged in the exploration, development and acquisition of natural gas, NGLs, and oil properties located in the Appalachian Basin has seen the value of its stock gain 20% since the start of the year. In mid-July, analysts at Jefferies upgraded Antero Resources to ‘Hold’ from ‘Underperform’ and raised their price target on the stock to $27 from $24, citing the company’s recent land purchase in West Virginia. In early June, Antero agreed to acquire roughly 55,000 net acres in the core of the Marcellus Shale for $450 million. “This core acreage complements the existing AR footprint and the main driver of our increasing price target”, said Jefferies analysts. Seth Klarman’s Baupost Group LLC was the owner of 21.51 million shares of Antero Resources Corp (NYSE:AR) at the end of the first quarter.

The second page of this article will disclose three other new additions made by Locust Wood Capital LP during the second quarter.

#3. Visa Inc. (NYSE:V)

– Shares owned by Locust Wood Capital LP as of June 30: 227,630

– Value of Locust Wood Capital LP’s holding as of June 30: $16.88 Million

The investment management firm founded by Wall Street veteran Stephen J. Errico initiated a new stake in Visa Inc. (NYSE:V) during the three-month period ending June 30, which comprised 227,630 shares. The new Visa position was valued at $16.88 million at the end of June and made up 1.9% of the investment firm’s portfolio. Just recently, global payments technology company Visa and internet payments pioneer Paypal Holdings Inc. (NASDAQ:PYPL) inked a partnership agreement under which Paypal’s long-running battle to steer customers away from using Visa and other cards was officially capitulated. In return, the credit-card company agreed not to increase fees to PayPal, as well as provide PayPal users access to Visa’s contactless payment points across the United States. Analysts believe the partnership deal makes a lot of sense for Visa, as PayPal will stop encouraging customers to link to bank accounts at the expense of Visa cards. Visa shares are up a little less than 1% year-to-date. Ken Fisher’s Fisher Asset Management holds a 14.82 million-share stake in Visa Inc. (NYSE:V) as of the end of the second quarter.

#2. Goldman Sachs Group Inc. (NYSE:GS)

– Shares owned by Locust Wood Capital LP as of June 30: 171,763

– Value of Locust Wood Capital LP’s holding as of June 30: $25.52 Million

The $1.1 billion-asset manager snatched up a 171,763-share stake in Goldman Sachs Group Inc. (NYSE:GS) during the June quarter, which was valued at $25.52 million at the end of the quarter. The new position accounted for 2.9% of the investment firm’s portfolio. Fresh media reports suggest that Goldman Sachs plans to raise capital for its first private-equity fund since the financial crisis, but the fund will not be as large as investment bank’s earlier vehicles. The new corporate-buyout fund of between $5 billion and $8 billion will be named West Street Capital Partners. Goldman Sachs will provide only a small portion of capital for the new fund because of post-crisis restrictions on risk-taking by banks. Under the Volcker rule passed as part of the Dodd-Frank financial law in 2010, banks can contribute no more than a total of 3% of the capital raised by private-equity firms. Goldman Sachs shares are almost 12% in the red thus far in 2016. Ray Carroll’s Breton Hill Capital has 6,443 shares of Goldman Sachs Group Inc. (NYSE:GS) among its holdings as of June 30.

#1. Ball Corporation (NYSE:BLL)

– Shares owned by Locust Wood Capital LP as of June 30: 358,173

– Value of Locust Wood Capital LP’s holding as of June 30: $25.89 Million

Ball Corporation (NYSE:BLL) was yet another addition to Locust Wood Capital LP’s portfolio during the second quarter, with the new position accounting for 2.9% of the hedge fund’s portfolio. The 358,173-share position was worth $25.89 million on June 30. The shares of the supplier of metal packaging to the beverage, food, personal care and household products industries are down 2% year-to-date. In mid-July, analysts at Barclays reestablished coverage on Ball Corporation with an ‘Equal Weight’ rating and a price target of $75, saying that “our positive industry view is balanced by our belief that synergy upside surprises are likely to be limited, and current valuation is stretched”. Ball Corporation recently completed the acquisition of Rexam PLC for roughly $6.1 billion of cash and equity, making the acquirer the largest manufacturer of beverage cans in the world. The company anticipates to derive synergies in excess of $300 million by the end of the third year of combined operations. Keith Meister’s Corvex Capital owned 2.56 million shares of Ball Corporation (NYSE:BLL) on March 31.

Disclosure: None