Luxor Capital Group, managed by Christian Leone, is a New York-based hedge fund with a $4.36 billion equity portfolio as of September 30. Founded in 2002, the fund has a relatively balanced structure, with holdings in equity and fixed income investments throughout the world. Aside from using a value-based approach when choosing its stocks, Luxor Capital also has a penchant for distressed companies. Given Luxor’s good track record and extensive research abilities, let’s take a closer look at the fund’s top five picks and how the firm traded them in the third quarter. Those stocks are Yahoo! Inc. (NASDAQ:YHOO), Twenty-First Century Fox Inc (NASDAQ:FOXA), GrubHub Inc (NYSE:GRUB), Panera Bread Co (NASDAQ:PNRA), and Citigroup Inc (NYSE:C).
In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, hedge fund experts at Insider Monkey look at the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolios. In fact, the 15 most popular small-cap stocks among hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points (see the details here).
#5 Citigroup Inc (NYSE:C)
– Shares held (as of September 30): 3.3 million
– Total Value (as of September 30): $163.82 million
Despite most market participants expecting the Federal Reserve to raise rates during its FOMC meeting next week and despite the S&P 500 recovering to within a few percentage points of its all-time high, Citigroup Inc (NYSE:C) still trades below its tangible book value. Although short-term traders are pessimistic about Citigroup because of the strong U.S dollar and weak emerging market conditions, Citigroup represents good long-term value, as the bank is “too big to fail” and will have enough capital reserves to pay a nice dividend and/or buy back stock in a few years. Ken Fisher‘s Fisher Asset Management owned 11.89 million Citigroup shares at the end of September.
#4 Panera Bread Co (NASDAQ:PNRA)
– Shares held (as of September 30): 997,838
– Total Value (as of September 30): $192.99 million
12 analysts have a ‘Buy’ rating, and nine have a ‘Hold’ rating on Panera Bread Co (NASDAQ:PNRA), which some bulls think is the next Chipotle Mexican Grill, Inc. (NYSE:CMG), as both companies have grown rapidly over the past five years and both have fantastic brand loyalty. Shares of Panera are up by 9% year-to-date and might have some more room to rally, as analysts have a consensus price target of $205.50, giving shares 8% more upside. Panera Bread also has some buy-side fans among the top investors that we track, with 23 elite funds owning around 13.8% of the company’s float as of September 30.
#3 GrubHub Inc (NYSE:GRUB)
– Shares held (as of September 30): 8.44 million
– Total Value (as of September 30): $205.4 million
Online and mobile restaurant pick-up and delivery order platform GrubHub Inc (NYSE:GRUB) reported disappointing results for its third quarter, with EPS of $0.13 on revenue of $85.7 million, missing both earnings and revenue expectations. In addition, the company’s quarterly EBITDA of $21.5 million was $3.4 million lower than analyst estimates. Although the results were disappointing and bears worry that Uber will encroach on GrubHub’s turf one day, the company is still growing very quickly, with revenue rising by 38.4% year-over-year and active diners rising by 41% year-over-year. 24 elite funds in our database were long GrubHub at the end of the third quarter.
#2 Twenty-First Century Fox Inc (NASDAQ:FOXA)
– Shares held (as of September 30): 11.28 million
– Total Value (as of September 30): $304.46 million
Luxor more than doubled its stake in Twenty-First Century Fox Inc (NASDAQ:FOXA) to over 11 million shares in the third quarter, good for almost 7% of the fund’s overall equity portfolio. For its first quarter of fiscal year 2016, the media and entertainment company reported EPS of $0.38, in-line with analyst estimates and revenue of $6.08 billion, missing expectations by $340 million. One piece of good news for Twenty-First Century Fox is that its cable network programming division is holding up nicely in the face of cord-cutting, as revenue from the cable segment rose by 7.2% year-over-year to $3.46 billion. Given the impending Presidential election in the U.S and all the advertising that comes with it, look for the division to do well for at least another year. Shares are down by 24% year-to-date and trade at 12.6-times forward earnings estimates.
#1 Yahoo! Inc. (NASDAQ:YHOO)
– Shares held (as of September 30): 10.57 million
– Total Value (as of September 30): $305.66 million
After careful consideration, Yahoo! Inc. (NASDAQ:YHOO)’s board recently announced that it will not spin-off its stake in Alibaba Group Holding Ltd (NYSE:BABA). Instead, the board is considering a reverse spin-off in which all Yahoo assets and liabilities outside of the company’s Alibaba stake will be transferred into a new company and the stock of that new company then be distributed to existing shareholders in a move that would create two separate public companies. The hope is that the reverse spin-off will force the market to award Yahoo more value for its core internet properties, which are currently priced at next-to-nothing given the value of its other assets. Hedge funds are optimistic about the stock, with 89 elite funds long Yahoo at the end of September.