It always seems like the Buffetts and Einhorns of the hedge fund world capture the lion’s share of media attention. However, there is an abundance of high-quality fund managers on Insider Monkey’s radar screen. One such manager is Michael Johnston of Steelhead Partners. Johnston’s $1.3 billion fund primarily divides its holdings between the technology and basic materials sectors.
His equity portfolio isn’t gigantic by any means, but because it’s important to pay attention to the fundamentals of our market-beating strategy—which piggybacks hedgies—we’re going to take a look at Steelhead Partners’ favorite stocks. See how investors have been beating the market here.
The largest equity position in the Steelhead Partners portfolio is Resolute Forest Products Inc (NYSE:RFP). The stock composes 12.76% of manager Michael Johnston’s portfolio, which is nearly twice as much as the next largest holding.
At year’s end, a total of 21 of the hedge funds we track were bullish in this stock, a change of 24% from one quarter earlier—Steelhead Partners is in good company with their long position in the paper products company. Resolute Forest Products has made a commitment to sustainable practices and sets lofty benchmarks for its operations, which, according to recent reports, they are meeting thus far.
Additionally, the forest products company, who conducts operations in the United States, Canada, and South Korea, has a forward P/E of 13.37, suggesting future earnings growth. Further, the predicted earnings per share next year for the stock is 51.25% higher than current averages. Resolute Forest Products has some momentum, at present, and the stock has been on a steady upward climb thus far in 2013, up 22.21%.
Level 3 Communications, Inc. (NYSE:LVLT) is the second-largest position in the Steelhead Partners portfolio, with 7.66% of the fund’s resources invested in the stock. The communications services company is poised for a CEO shakeup by year’s end, according to reports, which may give some investors pause. However, Level 3 Communications, Inc. (NYSE:LVLT) operates with a gross margin of nearly 60% (59.19%) and the predicted EPS next year is an astounding 833% higher than it has been of late.
Triple-digit growth is nothing to sneeze at, and with a comparatively low P/B of 3.78, the stock, which has declined in value by 25% over the past year, may be a good value for an investor who is confident (as Mr. Johnston appears to be) in the long term viability of the company. The forward P/E value (30.74) of the data transport and infrastructure company is encouraging from this perspective, as well.