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Senator Investment Group Makes Big Investment In International Paper

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Senator Investment Group, a hedge fund managed by Doug Silverman, has disclosed a position of over 23 million shares in International Paper Company (NYSE:IP). This gives the fund 5.2% of the total shares outstanding of the $21 billion market cap manufacturer of paper and packaging products. We track 13F filings from funds such as Senator as part of our work researching investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year), and so we can see that at the beginning of January Silverman and his team only owned 4.2 million shares of the stock as well as 3.5 million call options (see more of Silverman’s stock picks).

Senator was the largest shareholder out of the hedge funds and other notable investors which we track in our database, but others had positions in International Paper Company as well. Billionaire Dan Loeb’s Third Point initiated a position of 1.5 million shares in the fourth quarter of 2012 (check out more stocks Loeb was buying). Vinik Asset Management, managed by billionaire Jeffrey Vinik, cut its stake by 9% between October and December but still closed 2012 with 1.6 million shares in its portfolio (find Vinik’s favorite stocks). Iridian Asset Management was another major shareholder, reporting ownership of 3.1 million shares; that fund is managed by David Cohen and Harold Levy.

Dan Loeb THIRD POINT

In 2012, International Paper Company grew its revenue by 7% compared to 2011. Earnings shrunk significantly if restructuring charges are included as costs in both years; the paper industry in general is in a period of transition, and for the next couple years we would imagine that “special items” will continue to affect the bottom line of International Paper and its peers. With these factors bringing net income down for the year, the stock trades at 26 times its trailing earnings. Analyst expectations are for business conditions to improve over the next couple years, and as a result the forward P/E is only 10- which would represent pure value levels for a company which at least in recent years has managed to grow its sales. Looking out further, the five-year PEG ratio is low at 0.4; we’d also note that International Paper pays a dividend yield of 2.7%.

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