James Morrow’s Callodine Capital Portfolio: Top 10 Picks

In this article, we will discuss the top 10 stock picks of James Morrow’s Callodine Capital. If you want to skip our detailed analysis of Morrow’s history, investment philosophy, and hedge fund performance, go directly to James Morrow’s Callodine Capital Portfolio: Top 5 Picks.

Callodine Capital Management is the investment arm of the Callodine Group, which was founded by Mr. James Morrow in February 2018. Before that, Morrows worked as a Portfolio Manager at Fidelity Investments for nearly two decades in the Greater Boston area. At Fidelity, he managed funds across various asset classes, like equities, fixed income, and specialty niches. Morrow has a strong academic background with an MBA from the University of Chicago Booth School of Business and a BS in Finance from the University of Buffalo in New York.

Callodine Capital has a focus on targeting dividend-paying equities. The firm believes that a high dividend yield should be paired with strong valuations, future earnings growth, and comprehension of basic growth drivers. Callodine manages investment through long/short, long-only, and sector-focused strategies.

As of the second quarter of 2021, the equity portfolio of Callodine Capital is worth $265 million. The asset under management (AUM) would be higher as the public disclosure does not include investments in real estate, fixed income, or cash equivalents. The hedge fund likes to invest in large-cap stocks as 32% of its holdings are in companies that have a market capitalization of $10 billion or higher.

In the second quarter of 2021 market commentary, Morrows explained the contrast existing in the global financial markets through Seinfeld’s famous line, “It’s not a lie if you believe it.” He added that on one hand, the 10-year Treasury yield is hovering around 1.25%, reflecting slow economic growth in the near term. On the other hand, the valuation of the S&P 500 Index hit an all-time high based on the trailing twelve-month (TTM) price-to-earnings (P/E) ratio. This reflects that the investors expect the earnings growth to remain in place, and thus they are willing to pay high money for every dollar of earnings.

In the market commentary, Morrow explained that the US government had manipulated the present market situation by keeping the discount rates at the bottom to encourage economic growth. In addition to that, despite the pandemic, corporate earnings are at their highest as consumer income has increased significantly due to the relief packages, and as the economy is reopening, people have savings to spend that is further increasing economic activity across the board.

As of the second quarter of 2021, Callodine Capital has a sizeable stake in Citigroup Inc. (NYSE: C), Verizon Communications Inc. (NYSE: VZ), and Bristol-Myers Squibb Company (NYSE: BMY). According to the publicly available 13-F filings, Callodine Capital owns 70,000 shares in Citigroup Inc. (NYSE: C) at the end of the second quarter of 2021, with a market value of nearly $5 million. The New York-based financial services company has a weightage of 1.87% in Callodine Capital’s portfolio and offers a dividend yield of 2.89%.

Callodine Capital also holds 117,500 shares of Verizon Communications Inc. (NYSE: VZ), with a market value of $6.58 million. This reflects a weightage of 2.48% for the telecommunication giant in the portfolio of Callodine Capital. The company recently won five network modernization task orders from the US Department of Labor (DOL), worth around $887 million. The task requires up-gradation of legacy data, enterprise application, unified communications, and voice services for 20,000 DOL employees. A growing subscriber base and a line of long-term government contracts make Verizon Communications Inc. (NYSE: VZ) a stable dividend-yielding company for its investors. The dividend yield of Verizon Communications Inc. (NYSE: VZ) stands at 4.99%.

About 7% of Callodine’s portfolio is allocated to Bristol-Myers Squibb Company (NYSE: BMY). According to the latest 13F filings, Callodine holds 277,500 shares in Bristol-Myers Squibb Company (NYSE: BMY), with an estimated market value of $18.54 million.

Our Methodology

For this article, we picked the top 10 stocks from the second quarter portfolio of James Morrow’s Callodine Capital.

Why should we pay attention to Callodine Capital’s stock picks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

James Morrow’s Callodine Capital Portfolio: Top 10 Picks

10. Equitable Holdings, Inc. (NYSE:EQH)

Callodine Capital’s Stake Value: $8,983,000

Percentage of Morrow’s 13F Portfolio: 3.39%

Number of Hedge Fund Holders: 45

Equitable Holdings, Inc. (NYSE: EQH) provides a wide variety of financial services ranging from individual retirement, group retirement, and life insurance products to investment research and management services through its two businesses, namely Equitable and AllianceBernstein.

The shares of the New York-based company have been a part of Callodine Capital’s investment portfolio since the first quarter of 2021 and as per 13-F filings, the hedge fund held 295,000 shares with a market value of $8.98 million in Equitable Holdings, Inc. (NYSE: EQH) as of the second quarter of 2021.

Elyse Greenspan, an analyst at Wells Fargo & Company (NYSE: WFC), reiterated a Buy rating on Equitable Holdings, Inc. (NYSE: EQH) with a price target of $44. This reflects a potential upside of more than 38% from the current stock price hovering around the $32 level mark.

45 hedge funds were bullish on Equitable Holdings, Inc. (NYSE: EQH) as of the second quarter of 2021, compared to 44 in the previous quarter.

9. Gilead Sciences, Inc. (NASDAQ:GILD)

Callodine Capital’s Stake Value: $9,640,000

Percentage of Morrow’s 13F Portfolio: 3.63%

Number of Hedge Fund Holders: 54

Gilead Sciences, Inc. (NASDAQ: GILD) is a Foster City, California-based biopharmaceutical company leading the research and development of antiviral drugs employed in treating hepatitis B, hepatitis C, HIV, influenza, and many other diseases. The company has been in the limelight for the high pricing of its blockbuster drug Sovaldi used in the treatment of hepatitis C.

As of Q2 2021, the hedge fund owns 140,000 shares in Gilead Sciences, Inc. (NASDAQ: GILD), worth $9.64 million. The weightage of Gilead Sciences, Inc. (NASDAQ: GILD) in the fund’s portfolio increased from 2.38% during Q1 2021 to 3.64% at the end of Q2 2021.

Pharmaceutical companies are at the center of attention following the COVID-19 pandemic. In this regard, Gilead Sciences, Inc. (NASDAQ: GILD) released new data last month which revealed that for non-hospitalized patients with a higher likelihood of disease progressing, the risk of hospitalization or all-cause death declined by 87% when patients were administered Remdesivir, a medication developed by Gilead, as opposed to a placebo.

In addition to Citigroup Inc. (NYSE: C), Verizon Communications Inc. (NYSE: VZ), and Bristol-Myers Squibb Company (NYESE: BMY), Gilead Sciences, Inc. (NASDAQ: GILD) is one of the stocks attracting hedge funds’ investment.

8. Viatris Inc. (NASDAQ:VTRS)

Callodine Capital’s Stake Value: $9,816,000

Percentage of Morrow’s 13F Portfolio: 3.70%

Number of Hedge Fund Holders: 53

Viatris Inc. (NASDAQ: VTRS) is a company that was created in November 2020 following the merger of Upjohn and Mylan. Upjohn was a spinoff of the global off-patent generic branded and generic drugs by Pfizer Inc. (NYSE: PFE), while Mylan was a leading generic and specialty pharmaceutical company globally. Viatris is home to some popular brands like Lipitor, Viagra, and Xanax.

Viatris Inc. (NASDAQ: VTRS) has been a part of Callodine Capital’s investment portfolio since Q1 2020. As of Q2 2021, Callodine Capital owned 686,914 shares in Viatris Inc. (NASDAQ: VTRS) with an estimated market value of $9.81 million. The weightage of  Viatris Inc. (NASDAQ: VTRS) in James Morrow’s portfolio declined from 4.28% to 3.70% at the end of the second quarter of 2021.

Overall, the company witnessed a decline in hedge fund sentiment recently. Out of the 873 funds tracked by Insider Monkey, 53 held positions in Viatris Inc. (NASDAQ: VTRS) at the end of the second quarter, down from 58 in the previous quarter. The total value of these stakes is $1.53 billion.

As a part of its restructuring initiative, Viatris Inc. (NASDAQ: VTRS) is keeping up with its plan of closing down 15 facilities globally. On October 12, the company announced that it would close its facility in San Carlos, California. However, the closure of this facility did not come out as a surprise as Mylan had previously informed the state authorities that it intended to reduce its operations and, in the end, shut down the plant back in March 2020.

7. PennantPark Investment Corporation (NASDAQ:PNNT)

Callodine Capital’s Stake Value: $10,020,000

Percentage of Morrow’s 13F Portfolio: 3.78%

Number of Hedge Fund Holders: 7

PennantPark Investment Corporation (NASDAQ: PNNT) is a publicly listed company that gives investors exposure to middle market credit through various types of investment vehicles. The New York-based company was founded in 2007 and is focused on fulfilling debt requirements of middle-market companies with EBITDA of $10 million to $50 million.

As of Q2 2021, Callodine Capital’s stake in PennantPark Investment Corporation (NASDAQ: PNNT) stood at 1.5 million shares with a market value of $10.02 million. Following this development, the weightage of PennantPark Investment Corporation in the hedge fund’s portfolio increased from 3.17% in the first quarter to 3.78% in the second quarter.

PennantPark Investment Corporation’s (NASDAQ: PNNT) coverage was started with a price target of $7.50 and a Perform rating at the investment advisory Oppenheimer in September. Mitchell Penn, an analyst at the advisory, predicts that PennantPark Investment Corporation (NASDAQ: PNNT) can earn a return on equity of 8%.

7 hedge funds out of the 873 tracked by Insider Monkey were bullish on PennantPark Investment Corporation (NASDAQ: PNNT) as of the second quarter of 2021, down from 8 in the previous quarter. Despite the decrease in the number, the stake value in the stock has increased by $2.69 million.

Apart from PennantPark Investment Corporation (NASDAQ: PNNT), Bristol-Myers Squibb Company (NYESE: BMY), and Verizon Communications Inc. (NYSE: VZ), Citigroup Inc. (NYSE: C) is one of the stocks hedge funds are investing in.

6. Wells Fargo & Company (NYSE:WFC)

Callodine Capital’s Stake Value: $10,190,000

Percentage of Morrow’s 13F Portfolio: 3.84%

Number of Hedge Fund Holders: 94

Just like Citigroup Inc. (NYSE: C), Verizon Communications Inc. (NYSE: VZ), and Bristol-Myers Squibb Company (NYESE: BMY), Wells Fargo & Company (NYSE: WFC) is a name that needs very little introduction. The San Francisco, California-based financial services company has assets of $1.9 trillion and has a connection to one in three households in the US, and fulfills the requirement of the financial services of 10% of middle-market companies.

Callodine Capital owns 225,000 shares in Wells Fargo & Company (NYSE: WFC), with a market value of $10.19 million. There has been no change in the stock’s weightage in James Morrow’s portfolio from the last quarter. The stock has been a part of the portfolio since the second quarter of 2020.

In 2021, the stock price of Wells Fargo & Company (NYSE: WFC) has seen a rise of 53.2% as opposed to the broader market, observing an increase of 19.4% during the same period.

Investment management firm Argosy Investors discussed its stance on Wells Fargo & Company (NYSE: WFC) in its Q2 2021 investor letter. Here’s what the firm said:

“Wells Fargo & Company (NYSE: WFC) (+91% from October purchase to sale) were never intended to be core positions. I expected WFC could hit $60 in a number of years, but it got to the high $40’s in less than a year. It seemed like a good time to trim.”

Eagle Capital Management has the largest stake in Wells Fargo & Company (NYSE: WFC), worth $1.58 billion. Overall, 94 hedge funds out of the 873 being tracked by Insider Monkey held stakes in the company at the end of the second quarter, down from 96 in the previous quarter.

 

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Disclosure: None. James Morrow’s Callodine Capital Portfolio: Top 10 Picks is originally published on Insider Monkey.