At Insider Monkey, we track some of the hedge fund world’s most elite money managers, and one that often flies under the radar, yet is in our top 500 is Clint Carlson’s Carlson Capital. Let’s take a look at the fund’s four largest equity positions, because it’s important to track the smart money’s sentiment; discover the secrets of piggyback investing here.
NRG Energy
First on the list is NRG Energy Inc (NYSE:NRG), in which Carlson’s hedge fund disclosed a $139.8 million stake, up from $65.6 million at the end of 2012. The retail power and electric company sports a forward P/E of 21.1x and has a year-to-date return above 20%, and out of the funds we track, over 30 were invested heading into this year. NRG Energy Inc (NYSE:NRG) has become a player in the wind and solar industries, though most of its revenues are derived from traditional, fossil fuel-based energy sources. The company announced its first ever quarterly dividend last year, and now pas a yield of 1.9%.
With heavy investments made in the LNG space, particularly in Louisiana, Texas and California, there are plenty of reasons why Carlson would be bullish on NRG Energy Inc (NYSE:NRG) and its place in the U.S.’s growing domestic energy boom. A Bay City, Texas investment in nuclear power also gives NRG Energy Inc (NYSE:NRG) an added level of diversity most of its peers simply don’t have, and Wall Street expects it to sport EPS growth in excess of 200% this year—first in the diversified utilities industry. Not surprisingly, this growth is cheap, and trades at a PEG below 1.0.
That’s growth, diversity, yield, and everything else under the sun, at a reasonable price; it’s easy to understand why any investor would be buying.
Virgin Media
With a $139.6 million position, Virgin Media Inc. (NASDAQ:VMED) is next on the list. The hedge fund reported ownership of 2,851,500 shares, and this was a new position. Virgin Media Inc. (NASDAQ:VMED) was bought out by Liberty Global Inc. (NASDAQ:LBTYA) earlier this year, and with the deal set to close in June, there’s not much more room for a merger arbitrage play here—this is likely why Carlson was bullish.
Bunge
We should also mention Bunge Ltd (NYSE:BG), in which the hedge fund raised its position to $131.3 million, from $48.8 million reported in the previous filing. Bunge Ltd (NYSE:BG)’s position as one of the world’s most dominant soybean oil producers is one of its key strengths, and its placement in the South American fertilizer market is an advantage that’s underrated by most investors. The company’s sugarcane ethanol operations are improving, and the company’s yield has improved year-over-year in its latest earnings report.
In that same report, Bunge’s management has also cited that the aforementioned ethanol business is another area to expect growth, as the Brazilian “government has moved to increase gasoline prices, which has a follow-on affect to ethanol pricing and demand.” Needless to say, these factors at least partially explain why Wall Street expects earnings to expand by nearly 80% this year, with a long-range EPS forecast of 11% a year through 2017. Like NRG Energy Inc (NYSE:NRG), this potential is relatively cheap; Bunge trades at a forward P/E below 9.
Goldcorp
In Goldcorp Inc. (USA) (NYSE:GG), the hedge fund disclosed a holding that contains 3,779,050 shares, worth $127.1 million. In the previous 13F, Carlson Capital reported an $82.8 million stake, which involved 2,255,100 shares. With the largest market cap in the gold industry (a member of the basic materials sector), shares are expectedly down by more than 20% year-to-date as bullion prices have floundered.
Bank of America Corp (NYSE:BAC) has issued a report claiming that it expects the price of gold to hit $2,000 per ounce by 2016, “even if investors bought only a third of the gold they purchased in 2012.” As gold goes, so do its miners, and it’s likely that Carlson is betting a BofA-type scenario here.
Besides the fact that Goldcorp Inc. (USA) (NYSE:GG) is one of the largest bets on a rebound, the company also pays a decent dividend yield of 2.0%, and trades at a book multiple near parity. A PEG ratio close to 1.0 also indicates that Mr. Market is undervaluing Goldcorp’s earnings potential, which the sell-side expects to average EPS growth of 16% a year over the next half-decade.
It’s possible that the company can still hit its full-year earnings outlook despite the fact that bullion is down over 17% in 2013, and one of the most underrated areas in its staple is in Mexico’s Guerrero region, specifically at its Los Filos mine. Inflation in Mexico has also assisted the company’s tax outlook in this area, and according to its latest earnings report, Goldcorp expects a 29% effective tax rate for the full year of 2013.
According to last year’s data, this would be below the likes of Yamana Gold Inc. (USA) (NYSE:AUY), Barrick Gold Corporation (USA) (NYSE:ABX) by 4-5 percentage points, and on par with Kinross Gold Corporation (USA) (NYSE:KGC). These figures aren’t an end-all-be-all reason to invest in Goldcorp, but it’s something most investors aren’t talking about; we’ll be watching closely.
Final thoughts
Chances are, if you’re reading this, you may share a similar sentiment as Carlson. That is, you might be bullish on the energy, agriculture and gold markets. What’s less likely, though, is that you’re invested in this trio of areas in the same manner as this hedge fund. Down a significant amount in 2013, Goldcorp might not be the top pick of many gold investors expecting a rebound, but the company’s potential tax advantage—and fortuitous earnings forecast—might be worth looking into. Likewise, the Virgin Media opportunity has already passed, but Carlson’s investments in Bunge and NRG Energy Inc (NYSE:NRG) are intriguing, as each offers a set of company-specific reasons to be long over at least the next year.
Disclosure: none
