Shah Capital Management’s Top Stock Picks For 2016

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Shah Capital Management is a Raleigh, North Carolina-based activist hedge fund. Although the fund is quite small in size when compared to other investors, it owns activist stakes in several companies. Shah Capital was founded in 2005 by Himanshu H. Shah, a former Vice President and Senior Portfolio Manager at UBS. According to the fund’s latest 13F filing submitted with the US Securities and Exchange Commission (SEC) for the reporting period ended December 31, its equity portfolio was worth $107.36 million and consisted of 12 positions. The filing also revealed stocks from the industrial and technology sectors amassed the largest part of the fund’s equity portfolio and that its top five equity holdings accounted for over 75% of the value. Since the fund is heavily invested in its top five picks, in this post we will be focusing on these stocks and evaluate their performance in the past few months.

We track prominent investors like Himanshu H. Shah because our research has shown that historically their stock picks delivered superior risk-adjusted returns. The 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points per month in our backtests covering the period between 1999 and 2012 (see the details here).

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#5 Coeur Mining Inc (NYSE:CDE)

– Shares Owned by Shah Capital Management (as of December 31): 3.74 million

– Value of Holding (as of December 31): $9.26 million

Let’s start with silver mining company Coeur Mining Inc (NYSE:CDE), in which Shah Capital Management boosted its stake by 69% during the fourth quarter after having increased it by 52% during the previous quarter. Although the company lost over 50% of its market capitalization in 2015 largely due to the fall in silver prices, the over 10% rise that silver has had in 2016 has helped the stock to change its trajectory as it trades with year-to-date gains of over 40%. Currently, silver is trading at around $15.37 per ounce and experts believe that it needs to go above at least $16.50 for Coeur Mining to sustain its operational costs. Coeur Mining Inc (NYSE:CDE) posted a loss of $0.27 per share, missing the estimates of a loss of $0.17 per share, but its revenue of $164.20 million topped the expectations of $158.14 million. Eric Sprott‘s Sprott Asset Management reduced its stake in Coeur Mining by 25% to 255,800 shares during the October-December period.

#4 Genworth Financial Inc (NYSE:GNW)

– Shares Owned by Shah Capital Management (as of December 31): 3.15 million

– Value of Holding (as of December 31): $11.74 million

Genworth Financial Inc (NYSE:GNW) was a new addition in Shah Capital Management’s portfolio during the fourth quarter.  After declining by over 55% in 2015, shares of Genworth Financial Inc (NYSE:GNW) have fallen by 48% so far in 2016. Most of the stock’s decline this year came after the company reported its fourth-quarter numbers and announced that it would separate its struggling LTC business and suspend sales of life and fixed annuity products. For the fourth quarter, the company declared a loss of $0.17 per share on revenue of $2.16 billion, versus analysts’ expectations of $0.21 in earnings per share on revenue of $2.17 billion. Following the earnings report, Moody’s downgraded the company’s senior unsecured credit rating to Ba3 from Ba1, which put additional pressure on the stock. On February 6, the company announced that it would be laying off 330 of its employees in a cost-cutting move. Richard S. Pzena‘s Pzena Investment Management also increased its stake in Genworth Financial by 6% to 8.17 million shares during the fourth quarter.

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