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Tom Sandell’s Top Stock Picks Include Phillips 66 (PSX)

In May, Sandell Asset Management, a hedge fund founded and managed by Tom Sandell, filed its 13F for the first quarter of 2013 with the SEC. This filing disclosed many of the fund’s long equity positions in U.S. stocks as of the end of March; while these holdings might be a bit out of date as a result, investors can still treat them as free initial investment ideas and perform further research on any interesting names (see the full list of Sandell’s stock picks). We’ve also found that 13Fs can be useful resources in developing investment strategies (for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). Read on for our quick take on five of the fund’s largest holdings as of the end of Q1(leaving aside Virgin Media and Cymer, which have since been acquired).

Thomas Sandell

Sandell increased its stake in Spectra Energy Corp. (NYSE:SE) to a total of over 2 million shares. Spectra Energy Corp. (NYSE:SE) is a $24 billion market cap company primarily engaged in gathering and transporting natural gas through its network of pipelines. It is somewhat notable as a potential income stock, with an annual dividend yield of 3.5%; the company has been fairly good in terms of maintaining and increasing its quarterly payments over the last several years. However, financial performance has been about flat and the stock is valued at 21 times forward earnings estimates.

Compuware Corporation (NASDAQ:CPWR) was another of the investment team’s top picks with the filing disclosing ownership of 4.6 million shares. The $2.3 billion market cap enterprise software and solutions company declared a 12.5 cent quarterly dividend following an attempted buyout by Elliott Management, and at current prices that would make for an annual yield of 4.7% (though of course many income investors might prefer a company with a longer history of paying dividends). Revenue was down 10% in its most recent quarter (fiscal Q4, which ended in March) compared to the fourth quarter of its last fiscal year.

The fund initiated a position of 1.5 million shares in KAR Auction Services Inc (NYSE:KAR), which auctions off used or damaged vehicles, between January and March of this year. The dividend yield here is 3.2%, though we’d note that there is a limited history of paying dividends here as well. Revenue and earnings were both up about 10% in the first quarter of 2013 versus a year earlier, though markets have already accounted for at least some of KAR Auction Services Inc (NYSE:KAR)’s prospects with the stock trading at 17 times consensus earnings for 2014.

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