Gabalex Capital Management’s Top Stock Picks for Q2

Nigel Greig and Kenneth Cowin’s Gabalex Capital recently submitted its 13F filing with the Securities and Exchange Commission for the reporting period ending March 31, revealing a U.S equity portfolio worth $288.47 million and consisting of 22 positions. The New York-based long/short equity hedge fund was founded in 2008 by Mr. Greig, who was a Senior Managing Director in the private client services division at Bear Stearns for 12 years prior to starting the fund. Mr. Cowin meanwhile currently serves as the Chief Compliance Officer and Chief Operating Officer of the fund, having previously worked as the Chief Compliance Officer at Trilogy Capital LLC. The latest filing from Gabalex Capital’s reveals a fairly diversified U.S equity portfolio, with stocks from nearly all prominent sectors contained in it, while its top-5 picks accounted for 45% of the value of its portfolio. Since Gabalex Capital was betting big on these five stocks going into the second quarter, we are going to focus on them in this article.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 Gilead Sciences, Inc. (NASDAQ:GILD)

 – Shares held by Gabalex Capital (as of March 31): 225,000

 – Value of Holding (as of March 31): $20.67 million

After increasing its stake in Gilead Sciences, Inc. (NASDAQ:GILD) by 50% during the final quarter of 2015, Gabalex Capital again boosted its holding by 50% during the first quarter. The stock of the biopharmaceutical giant is currently trading down by 16.14% year-to-date owing largely to the decline it suffered after the company came out with its first quarter results. While the Street had estimated Gilead to report EPS of $3.13 on revenue of $8.08 billion for the quarter, the company declared EPS of $3.03 on revenue of $7.80 billion. Investors fear that sales of the company’s Hepatitis C drugs have peaked and that there are no major products in its drug pipeline to replace them, which could lead to results weakening further in the future. However, a large number of analysts continue to remain bullish on the stock, including analysts at Robert W. Baird, who reiterated their ‘Buy’ rating and $135 price target on it on May 1. Bernard Selz‘s Selz Capital was another hedge fund that increased its stake in Gilead Sciences, Inc. (NASDAQ:GILD)’s during the first quarter, by 16% to 150,000 shares.

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#4 Berkshire Hathaway Inc. (NYSE:BRK.B)

 – Shares held by Gabalex Capital (as of March 31): 150,000

 – Value of Holding (as of March 31): $21.28 million

Gabalex Capital kept its stake in Berkshire Hathaway Inc. (NYSE:BRK.B) unchanged during the first quarter, at 150,000 shares. After witnessing a slow and steady decline last year, shares of the investment giant have managed to recoup some of those losses this year, as they currently trade up by 7.33% year-to-date. On May 3, Clayton Homes, a subsidiary of Berkshire Hathaway Inc. (NYSE:BRK.B), announced that it purchased Tennessee-based Goodall Homes for an undisclosed sum. Berkshire Hathaway recently reported its first quarter results, which were in-line with analysts’ expectations. While the operating earnings of $3.74 billion that the company reported for the quarter came in well beneath the operating earnings of $4.24 billion that it had reported for the same quarter of last year, the net earnings attributable to shareholders for the quarter were up by 8.33% year-over-year to $5.59 billion. Gifford Combs‘ Dalton Investments inched up its stake in Berkshire Hathaway by 1% to 224,033 shares during the first quarter.

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Gabalex Capital’s top-3 stock picks for the second quarter are revealed on page two.