Is InfraREIT Inc. a good stock to buy? Ken Griffin’s Citadel Investment Group recently filed a Schedule 13G form disclosing it owns nearly 2.39 million shares of InfraREIT Inc. (NYSE:HIFR). This marks an increase of 1.23 million shares from the stake Griffin reported holding as of March 31, and gives him a 5.5% passive ownership position in the company now. InfraREIT Inc. (NYSE:HIFR) is a real estate investment trust (REIT) that owns rate-regulated electricity delivery infrastructure assets in Texas.
Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 144% over the ensuing 32 months, outperforming the S&P 500 Index by nearly 85 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
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Citadel Investment Group is a Chicago-based hedge fund firm established by its current Chief Executive Officer (CEO), Kenneth Griffin, in 1990. Currently, the global multi-strategy hedge fund and asset management firm is the eleventh-largest hedge fund and the second-largest multi-strategy hedge fund in the world. Citadel is not only one of the largest hedge funds worldwide, but is also one of the most successful investment management firms in history. According to Bloomberg Markets magazine, Griffin’s fund has delivered an annualized return of 26% since its inception after subtracting its management fees. As stated by its most recent 13F filing, Citadel manages a public equity portfolio with a value of $89.81 billion. The strong financial performance of this hedge fund certainly encourages us to take a closer look at its holdings so as to identify some high-potential picks. In this article we will also discuss Citadel’s holdings in Lennar Corp. (NYSE:LEN) and DR Horton Inc. (NYSE:DHI), two other companies in the real estate business.
First though, back to InfraREIT Inc. (NYSE:HIFR). The company believes that it can fully utilize the favorable trends in the rapidly-growing transmission and distribution (T&D) sector, which include the replacement of aging assets and construction of new assets in order to meet the growing energy demand. The shares of InfraREIT have risen by 19% over the past three months, which is quite promising, as the company went public only at the beginning of the current year. On Tuesday, the global investment bank Macquarie Group initiated coverage of InfraREIT and Andrew Weisel, an analyst at the firm, published a report on the real estate investment trust, giving the stock an “Outperform” rating and indicating a price target of $36. In the meantime, InfraREIT shares are currently trading at $31.84 a share, which represents a 13% upside potential for investors. Even though the analyst’s price target might involve a bit of subjectivity, it is quite definite that InfraREIT is seeing a lot of opportunities on the horizon. Hunt Consolidated, which manages InfraREIT, is currently discussing an acquisition of Oncor, which is Texas’s largest regulated electric delivery business, with Energy Future Holdings. Therefore, it is believed that a successful deal would boost InfraREIT’s growth significantly.
