At Insider Monkey, we track 450 of the world’s most elite hedge funds. By focusing on their best investments, we’ve developed strategies that have generated market-beating returns, historically speaking. For more than a decade, our small-cap strategy beat the market by 18% in our back tests, and since sharing these picks with the public six months ago, it has outpaced the S&P 500 by more than 20% (learn how to use this strategy yourself).
With that in mind, it’s also important to perform a fund-by-fund analysis of the smart money’s world. Since fourth quarter 13F filings have been released, we’ve analyzed more than 100 money managers, but one that we haven’t taken a look at yet is Murray Stahl’s Horizon Asset Management. Stahl adheres to a research-based, long-term contrarian investment philosophy focused on fundamental valuation, and his elongated time horizon sets him apart from many of his peers. Let’s take a look at what his top five equity holdings were at the end of Q4, to see how he’s preparing for 2013 and beyond.
Liberty Media Corp (NASDAQ:LMCA) is the top overall holding in Stahl’s equity portfolio, a spot it has held for five consecutive quarters. In the fourth quarter, the hedge fund manager cut his stake by 8%, though it’s worth noting that the industry’s aggregate interest in this stock increased by 2%. In terms of total value, Stahl’s $317 million position in the media giant is the third largest of the funds we track, behind Tiger Global Management and Warren Buffett (see Buffett’s newest picks here).
Liberty Media has had an eventful 2013, spinning off Starz and upping its stake in Sirius XM above 50% in mid-January. Since these moves, shares of Liberty Media have remained essentially flat, but at a book valuation nearly half that of its industry’s average and an earnings multiple below 9.0x, there’s obvious long-term value here. This is likely what Stahl is looking at.
Howard Hughes Corp (NYSE:HHC) sits at No. 2 in the hedgie’s equity portfolio, where it has for four straight quarters. Other prominent Howard Hughes bulls include Whitney Tilson and Bill Ackman (see Ackman’s stock picks), and the key bullish thesis behind this real estate operator is its value. As we’ve discussed before, many of Howard Hughes’s properties are generating little cash flow, making a proper valuation tricky. A few particular areas that look attractive are its properties in Las Vegas, Houston, South Street Seaport, and Honolulu, Hawaii, and at 1.3 times their book, the company’s shares are trading at a 19% discount to their industry’s average.
Jarden Corp (NYSE:JAH) and AutoNation, Inc. (NYSE:AN), meanwhile, sit at No.’s 3 and 4 in Stahl’s equity portfolio, and the size of each position was downsized by an average of 9% last quarter. Jarden, a diversified consumer products company, calls Stahl its largest “smart money shareholder” of the hedge funds we track, he has the second largest position in auto dealer AutoNation.
Why is this the case?
As you’d probably expect, both Jarden and Autonation represent strong value plays in their respective industries. Jarden’s price-to-sales multiple of 0.72x is in the lower half of the consumer goods sector, and Wall Street’s average price target represents a 14-15% upside from current levels.
AutoNation, on the other hand, is expected to have 4-5% upside, but it’s worth noting that its shares trade at a far cheaper valuation. Despite the fact that it has risen double-digits year-to-date (in percentage terms), AutoNation’s stock price sports a 66% discount to sales value parity, and a PEG of 0.95. It’s easy to see why Stahl is a long-term bull.
Brookfield Asset Management Inc. (USA) (NYSE:BAM), lastly, rounds out this top five, and curiously, hedge funds’ aggregate interest in the investment services giant fell by 12% last quarter. Stahl and Horizon were cutting their stake by 4%, and other managers who sold off their positions entirely include Israel Englander and D. E. Shaw. Brookfield is up a modest 5.1% year-to-date, and it trades at a particularly average 1.2 times book. This valuation is about 13% higher than it was last March, and it is at a one-year high. Over the long run, there’s still a bit of value here, but it’s understandable why some funds were trimming their stakes at the end of the year.
This concludes Murray Stahl and Horizon Asset Management’s top five stock picks, but the story doesn’t stop there. It’s also important to take a look at the hedge fund manager’s full equity portfolio, which can be seen here on Insider Monkey.
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