Hedge Fund North Run Capital’s Stock Picks for 2013

13F filings are made within several weeks after the end of a quarter and disclose many of the long equity positions held by a hedge fund or other major investor. One way that we use this information to benefit investors is by researching investment strategies derived from our database of filings. For example, the most popular small cap stocks among hedge funds tend to outperform the market; we published the list of these stocks in our August newsletter, with those names then producing an excess return of 18 percentage points between September and January (read more about our hedge fund strategies). Of course, even looking at a single 13F can provide free investment advice from hedge fund managers and an investor can research their stock picks in more detail if they sound intriguing. Read on for our thoughts on North Run Capital (a hedge fund managed by Thomas Ellis and Todd Hammer)’s five largest holdings as of the end of December 2012 and compare them to previous filings.

The fund’s top pick was CIT Group Inc. (NYSE:CIT) with a position of 1.6 million shares as well as a large number of call options. The $8.6 billion market cap commercial lender failed to turn a profit in 2012 but did report positive earnings in the fourth quarter of the year (when revenue was up 32% from a year earlier); analyst expectations imply a current-year P/E of 11. CIT is also valued at the book value of its equity. Oaktree Capital Management, managed by billionaire Howard Marks, owned 6.8 million shares of CIT at the end of September (find Oaktree’s favorite stocks).

North Run reported owning 1.7 million shares of Hospira, Inc. (NYSE:HSP), up from 1.1 million shares three months earlier. Hospira is a $5.7 billion market cap developer of injectable pharmaceutical products for a variety of purposes. It trades at 15 times consensus earnings for 2013, which seems to be an appropriate price or possibly a bit high for a company which reported very light sales growth in its most recent quarter compared to the same period in 2011. John Rogers’ Ariel Investments was a major holder of the stock in the third quarter of 2012.