Two Sigma Advisors’ Best Stock Picks: Taubman Centers, Inc. (TCO), Ares Capital Corporation (ARCC)

PDL BioPharma Inc. (NASDAQ:PDLI) is Two Sigma’s third largest small-cap holding, and has seen its shares lose over 6% in the past week. PDL BioPharma was downgraded by Credit Suisse to “underperform” on Tuesday, but at a lowly PEG of 0.37, there still looks to be some value in the stock. Wall Street expects PDL’s earnings to more than double this year, and according to Zacks, royalties from the trio of Biogen, Roche and Elan give reason to be bullish. Additionally, PDL pays a very strong dividend yield above 8%, so there’s something here for both value and income-oriented investors.

In fourth place we have Penn National Gaming, Inc (NASDAQ:PENN), which is expected to create the first ever casino-based REIT this year. Penn has been up close to 20% over the last three months as investors are optimistic on the revolutionary property spin off, and still trade below 18 times forward earnings. The sell-side predicts that earnings will grow by 21-22% over the next year. With the strong possibility that investors will receive shares of Penn’s REIT on a one-to-one basis in addition to a special dividend, there’s a lot to like about this stock at the moment.

Last but certainly not least, American Capital Ltd. (NASDAQ:ACAS) is Two Sigma’s fifth favorite small-cap stock pick. Like Ares Capital, American Capital is a BDC and has its fingers in everything from cable set-top boxes to sporting goods. American Capital has seen its earnings shrink by an average of 11% a year over the past half-decade, but analysts expect this growth to be positive (15% annually) over the next five years. With this in mind, shares of the BDC trade at a measly PEG ratio of 0.19, indicating that investors aren’t accounting for this growth.

For more related coverage, check out the hedge fund industry’s interest in American Capital on Insider Monkey.

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Two Sigma Advisors: 13F Portfolio Holdings

Two Sigma Advisors: News, Interviews, and Investor Letters

Disclosure: I have no positions in any of the stocks mentioned in this article