Skylands Capital Likes Apple In Q4, But Likes These Two Stocks More

Some tend to believe that tracking 13F filings is not overly useful, as they do not disclose hedge funds’ short positions. Thus, some positions may be wrongly interpreted by the market as a result (i.e. when firms employ arbitrage strategies). However, it makes perfect sense to track and examine the 13F filings of long-biased, long/short investment firms. Skylands Capital LLC is one the long/short investment firms monitored by Insider Monkey, which specializes in U.S stocks and manages four long-biased, long/short portfolios and long-only portfolios. The Milwaukee-based investment firm manages an equity portfolio with a market value of $743.56 million as of September 30, compared with $931.05 million registered at the end of the prior quarter. Skylands’ owner and head portfolio manager, Charles Paquelet, and his team undertook a vigorous re-balancing process during the third quarter, so it will be particularly worthwhile to take a look at their top stock picks at the end of the three-month period, which is exactly what we’ll do in this article.

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

#5 General Motors Company (NYSE:GM)

Shares Owned by Skylands Capital (as of September 30): 818,050 shares

Value of Holding (as of September 30): $24.56 million

General Motors Company (NYSE:GM) represents a new addition to Skylands Capital’s list of its five largest holdings. However, the Milwaukee-based firm reduced its holding in the car maker by 39,700 shares during the recent quarter, with it accounting for 3.30% of its portfolio on September 30. The shares of GM are half-a-percent in the red year-to-date and are trading at a forward P/E ratio of only 6.45, which suggests that they are greatly undervalued at the moment should analysts’ earnings estimates be accurate. Earlier this week, GM announced its intentions to recall more than 1.4 million vehicles due to a fire hazard. Warren Buffett’s Berkshire Hathaway owns 41 million shares of General Motors Company (NYSE:GM) as of June 30.

#4 Norfolk Southern Corp. (NYSE:NSC)

Shares Owned by Skylands Capital (as of September 30): 448,800 shares

Value of Holding (as of September 30): $34.29 million

Skylands Capital trimmed  its position in Norfolk Southern Corp. (NYSE:NSC) by 47,450 shares during the three-month period that ended September 30. The stock has been on a steady decline since late February and appears to be in a bottoming-out phase at the moment. The transportation company’s business has been impacted by the challenging commodities markets, which are anticipated to further affect the company’s fourth quarter operations and activities as well. This Wednesday, the company reported third quarter net income of $452 million, compared to $559 million reported a year ago. Even so, Norfolk’s management expects a much stronger fiscal 2016 should the U.S economy keep strengthening. Phill Gross and Robert Atchinson’s Adage Capital Management was bullish on Norfolk Southern Corp. (NYSE:NSC) during the second quarter, holding approximately 470,000 shares at the end of June.

#3 Apple Inc. (NASDAQ:AAPL)

Shares Owned by Skylands Capital (as of September 30): 329,765 shares

Value of Holding (as of September 30): $36.37 million

It is not entirely clear whether Skylands Capital lost some confidence in Apple Inc. (NASDAQ:AAPL) or the 5,900-share block reduction in its position during the third quarter was part of the firm’s re-balancing process, but the tech giant gained one spot on the aforementioned list of the firm’s top stock picks. It seems that the iPhone maker has proven once again that it is capable of delivering exorbitant growth despite facing numerous headwinds such as the strong U.S dollar and high reliance on its iPhone sales. It is also hard to ignore that Apple’s shares are currently trading at a forward P/E ratio of 12.32, when the median for the S&P 500 stands at 18.41. Only time will tell whether the worries about Apple’s high reliance on iPhone sales turn out to be valid. Carl Icahn of Icahn Capital LP, who owns 52.76 million shares of Apple Inc. (NASDAQ:AAPL) as of June 30, recently asserted that the stock was worth $240 per share.

#2 Crown Castle International Corp (NYSE:CCI)

Shares Owned by Skylands Capital (as of September 30): 668,450 shares

Value of Holding (as of September 30): $52.72 million

Skylands Capital’s position in Crown Castle International Corp (NYSE:CCI) stood at 668,450 shares at the end of the third quarter, down by 18,075 shares quarter-over-quarter. The freshly-disclosed position represents 5.92% of the investment firm’s portfolio as of September 30. The provider of wireless infrastructure reported site rental revenues that topped the high-end of its third quarter outlook and also increased the mid-point of its full-year guidance for site rental revenues. Similarly, the company announced an increase in its annual dividend to $3.54 per share of common stock from $3.28. Meanwhile, the stock has advanced by nearly 13% since the beginning of the year, and may go higher in the months ahead if the company succeeds in strengthening its leadership position in the wireless infrastructure industry. Andreas Halvorsen’s Viking Global was one of the top equity holders of Crown Castle International Corp (NYSE:CCI) at the end of the June quarter, with 5.53 million shares.

#1 Union Pacific Corporation (NYSE:UNP)

Shares Owned by Skylands Capital (as of September 30): 791,950 shares

Value of Holding (as of September 30): $70.02 million

Union Pacific Corporation (NYSE:UNP) retained its spot on the top of Skylands Capital’s equity portfolio, even though the Milwaukee-based firm decreased its position in the company by 36,150 shares during the third quarter. The 791,950-share stake accounts for 9.42% of the fund’s portfolio as of September 30. The U.S operator of railroads has been experiencing several headwinds over the past few months, including a decline in coal shipments. Energy prices, consumer sentiment, grain markets and the future of the U.S dollar represent major forces that will influence the company’s business in the upcoming year. The shares of the company are down by 24% year-to-date, but the strengthening U.S economy might put Union Pacific Corporation back on track. Cliff Asness’ AQR Capital Management was another top shareholder of Union Pacific Corporation (NYSE:UNP) at the end of the second quarter, owning 1.37 million shares.

Disclosure: None