QVT Financial Reduces Exposure to Healthcare Going Into 2016; Here Are Its Top Stock Picks

QVT Financial is a New York-based long/short equity hedge fund founded by Daniel Gold in 2003. Prior to founding QVT Financial, Mr. Gold worked as a proprietary trader at Deutsche Bank. The fund currently manages approximately $3 billion of investors’ money. Our analysis of QVT’s 13F holdings shows that the 30 long positions in companies worth over $1 billion held by the fund during 2015 delivered a weighted average loss of 3.7%. According to the filing, QVT Financial’s US equity portfolio at the end of December was worth $1.78 billion, down by 39% over the quarter. The filing also reveals by the end of the fourth quarter the fund had reduced its exposure to the healthcare sector to 37% from 64% at the end of the previous quarter. In this post we will be going through QVT Financial’s top five stock picks going into 2016.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. Our researched showed that imitating the 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

 #5 Realogy Holdings Corp (NYSE:RLGY)

– Shares Owned by QVT Financial (as of December 31): 740,000

– Value of Holding (as of December 31): $27.14 million

Real estate brokerage franchiser Realogy Holdings Corp (NYSE:RLGY) lost 21% of its market capitalization during the second-half of 2015 and is again trading down 13% so far this year. On February 24, the company reported its fourth-quarter results, declaring EPS of $0.06 on revenue of $1.33 billion, missing the estimates of EPS of $0.23 on revenue of $1.37 billion. At the same time, the company announced a $275 million share repurchase program. Following the earnings release several analysts lowered their rating on the stock, including JPMorgan Chase & Co., which downgraded the stock to ‘Neutral’ from ‘Overweight’. While QVT Financial kept its stake in Realogy Holdings Corp (NYSE:RLGY) unchanged during the fourth quarter, billionaire John Paulson‘s Paulson & Co cut its holding by 26% to 5.26 million shares.

#4 New York Times Co (NYSE:NYT)

– Shares Owned by QVT Financial (as of December 31): 2.1 million

– Value of Holding (as of December 31): $28.2 Million

Amid a 13.6% rise of the New York Times Co (NYSE:NYT)’s stock during the fourth quarter, QVT Financial increased its stake in the company by 4%. So far this year the stock has lost over 7%, but analysts feel that, trading at a forward price-to-earnings multiple of 19.17, the stock’s valuation is reasonable. For its last quarter, the company managed to beat analysts’ estimates by declaring EPS of $0.37 on revenue of $444.70 million, versus expectations of EPS of $0.30 on revenue of $439.67 million. On February 18, New York Times Co (NYSE:NYT) declared a quarterly dividend of $0.4 per share, which at current prices gives the stock a dividend yield of 1.28%. Carson Yost‘s Yost Capital Management initiated a stake in the company during the fourth quarter by acquiring 750,000 shares.

#3 SanDisk Corporation (NASDAQ:SNDK)

– Shares Owned by QVT Financial (as of December 31): 387,805

– Value of Holding (as of December 31): $29.47 Million

SanDisk Corporation (NASDAQ:SNDK) represents a new position in QVT Financial’s equity portfolio. In October, Western Digital Corporation (NASDAQ:WDC) announced that it will be acquiring SanDisk Corporation (NASDAQ:SNDK) for $19 billion in a cash-and-stock deal. Since then, shares of SanDisk Corporation have largely remained range bound, however, they are currently trading down nearly 16% for 2016. The deal is expected to get completed by the end of this year and in case it falls through, Western Digital Corporation will have to pay $184 million to SanDisk as a break-up fee. On February 22, reports emerged that Alken Asset Management, a key shareholder of Western Digital Corporation (NASDAQ:WDC), is urging the company to walk away from this deal arguing that the $19 billion valuation for SanDisk is too expensive. On February 24, analysts at Macquarie reiterated their ‘Neutral’ rating on SanDisk stock, but lowered their price target on it to $70 from $86.50.

#2 Acceleron Pharma Inc (NASDAQ:XLRN)

– Shares Owned by QVT Financial (as of December 31): 640,300

– Value of Holding (as of December 31): $31.22 Million

Acceleron Pharma Inc (NASDAQ:XLRN) saw an impressive rally during the fourth quarter with its shares registering gains of nearly 100%. Due to that, the company emerged as QVT Financial’s second top stock pick at the end of December, even though the fund cut its stake in it by 26% during the fourth quarter. Year-to-date the stock has slid by 50%. On February 25, Acceleron Pharma reported its fourth-quarter results, which included a loss of $0.81 per share on revenue of $3.80 million, which compares to a loss of $0.55 per share and revenue of $3.80 million it disclosed a year earlier. Seven of the eight analysts who cover the stock currently have a ‘Buy’ rating on it and an average price target of $56.25. Billionaire Israel Englander‘s Millenium Management boosted its position in the company by 373% to 702,177 shares during the October-December period.

#1 Equity Commonwealth (NYSE:EQC)

– Shares Owned by QVT Financial (as of December 31): 1.26 million

– Value of Holding (as of December 31): $35.08 Million

Though QVT Financial kept its stake in Equity Commonwealth (NYSE:EQC) unchanged during the fourth quarter, the company became the top stock pick of the fund going into 2016. Equity Commonwealth is turning out to be one of the best-performing real estate investment trust (REIT) in 2016 with its stock trading nearly flat for the year currently, compared to the significant losses suffered by its peers. Shares of Equity Commonwealth has seen a minor rally in the last few days, despite the company reporting worse-than-expected fourth quarter numbers. While the Street was expecting EPS of $0.32 on revenue of $154.44 million, Equity Commonwealth reported EPS of $0.27 on revenue of $138.90 million. David Thomas‘ Atalan Capital initiated a stake in Equity Commonwealth during the fourth quarter by purchasing 675,000 shares of the REIT.

Disclosure: None