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Whiting Petroleum Corp (WLL) Ken Griffin Ups Exposure to Energy; Nathan’s Famous, Inc. (NATH) in Middle of Selling Streak

Warren Lichtenstein‘s Steel Partners has disclosed another cut in its indirect position in Nathan’s Famous, Inc. (NASDAQ:NATH) by 26%, according to a 13D form filed with the SEC. The stake now accounts for 234,914 shares, which represent 5.2% of the company’s outstanding common stock and are deemed to be owned by Steel Partners through one of its holdings, CoSine Communications, Inc. (OTCMKTS:COSN). According to another filing, Ken Griffin’s Citadel Investment Group disclosed holding 12.0 million shares of Whiting Petroleum Corp (NYSE:WLL), which represent 5.9% of the company’s outstanding shares, up from 2.46 million shares held previously.

CITADEL INVESTMENT GROUP

Griffin founded Citadel Investment Group in 1990. The fund’s quantitative strategy involving advanced financial algorithms has been very successful except during the financial crisis of 2008. Citadel’s flagship fund, Wellington, was up nearly 18% in 2014, while its global equity fund gained about 23% during the same period. The value of the fund’s equity portfolio stood at $82.66 billion at  the end of 2014, with consumer discretionary forming 22% of the value and information technology another 20%.

Steel Partners was co-founded by Lichtenstein around the same time as Citadel. His strategy involves investing in companies with simple to understand business models that have lost the favor of investors and thus have an inbuilt margin of safety considering the levels that they are trading on. Steel’s equity portfolio has a much smaller market value than Citadel, at $758.45 million, and the holdings are concentrated in the Industrial Goods sector, which forms 68% of the portfolio value. The fund is not very diversified, since top ten holdings constituted 97.96% of the value of total holdings and the largest position, represented by Handy & Harman Ltd (NASDAQ:HNH), amasses over 60% of the equity portfolio.

However, even though most popular companies among large funds get the most attention from the media and general public, imitating these stocks is not a good idea for a smaller investor. According to our backtests, a portfolio that consists of 50 most popular stocks among hedge funds underperformed Mr. Market by 7 basis points per month between 1999 and 2012. The edge that can allow a retail investor to gain significant returns by following the activity of hedge funds lies in imitating their small-cap picks. After our backtests showed an average outperformance of 1.0 percentage points per month, we have been sharing some of the most popular small-cap companies among more than 700 hedge funds since August 2012. Over the last 2.5 years, our small-cap strategy beat the market by more than 79 percentage points and posted a gain of 132% (read the details here).

Let’s move on to Citadel’s stake in Whiting Petroleum Corp (NYSE:WLL). The company is fairly popular among over 700 hedge funds that we track. At the end of the fourth quarter 77 funds held around $6.50 billion of the company’s stock as compared to 74 funds with $7.57 billion a quarter earlier. John Paulson’s Paulson & Co upped its stake in Whiting Petroleum Corp (NYSE:WLL) by 44% during the fourth quarter and holds 13.45 million shares valued at $443.90 million, according to its latest 13F filing.

The stock of Whiting Petroleum Corp (NYSE:WLL) has been down by nearly 54.8% over the last year, mainly due to the falling oil prices, crude oil futures alone have slid by about 53% since July. The company has announced that it plans to sell 35 million common shares in order to reduce its $5.63 billion debt. A significant part of this leverage was piled up when Whiting acquired Kodiak Oil & Gas Corp. last year and added its $2.2 billion debt to its own balance sheet. Besides the equity offering the company also plans to hold a $1.75 billion debt issuance this year. The stock offering and plans to take on more debt took off the table some previous rumors regarding a potential takeover of Whiting Petroleum Corp (NYSE:WLL).

The recent reduction in  Nathan’s Famous, Inc. (NASDAQ:NATH) stake is the latest of a series of cuts that Steel Partners disclosed this month. The fast food chain specializing in hot dogs is also making an equity play as it announced in late February this year that it will be offering senior secured debt notes due 2020 to the tune of $125 million. Nearly $116 million of this will be used to pay a special dividend to shareholders. The remaining amount will be used for general corporate purposes, according to the company. Nathan’s Famous, Inc. (NASDAQ:NATH)’s stock advanced by 48.5% over the last year. Mario Gabelli’s GAMCO Investors is another significant shareholder of the company with 248,300 shares valued at $19.87 million, according to its latest 13F filing.

Disclosure: none