By Jake Mann
Hedge funds' fourth quarter 13F filings have started to roll in, and we're giving you up-to-date coverage of this situation. Marc Lasry, manager of the New York-based Avenue Capital, has issued his latest filing, and despite the fact that he holds a relatively small equity portfolio, it's still important that retail investors pay attention. Our research has shown that hedge funds' top consensus picks beat the market significantly (see just how much here), so let's take a look at what the billionaire's favorite stocks were at the end of the fourth quarter.
Magnachip Semiconductor (MX) remains Lasry's No. 1 holding, a position that has been held steady since the end of the third quarter. The semiconductor manufacturer accounts for close to half of the hedge fund manager's total equity portfolio, and shares have risen a whopping 31.8% over the past three months. A distribution agreement with the German INELTEK GmbH has investors feeling cheery over Magnachip's growth prospects, and an 8% Q4 earnings beat is the proverbial cherry on top. Despite its recent appreciation, the stock still trades at depressed earnings (3.1x) and sales (0.7x) multiples, and Wall Street's price target on MX estimates a 40% upside is possible from current levels.
Dynegy Inc. (DYN) clocks in at the No. 2 spot in Lasry's 13F portfolio, and is a newly reported position for Avenue Capital. Altogether, the fund's holdings in Dynegy were worth a little over $85 million at the end of the fourth quarter, and shares of the utilities-centric holding company have been a solid investment over the past three months. DYN is up 9.5% since mid-November, and has been in the green since coming out of bankruptcy on October 1st last year.
The Wall Street Journal said it best when it mentioned that management "understands Dynegy is a long way from its heyday as a Houston energy powerhouse that investors once compared to Enron," but if this company can meet its modest expectations, it could provide value. The sell-side forecasts Dynegy to experience earnings growth of 7-8% annually over the next half-decade, and shares do trade at a very cheap PEG ratio near 0.5. It's easy to see why Marc Lasry and Avenue Capital are bullish.
General Motors (GM) was a favorite of Lasry in Q3, and it remained a favorite at the end of Q4. Since one high-level executive bought a decent amount of shares last November, GM's stock price has risen more than 12%. This is a good example of why it's important to follow insider trading activity, particularly when it's bullish. GM trades at a PEG below 1.0, has a book value near parity, and most importantly, it has beaten the Street's revenue and earnings consensuses four of the past five quarters. Warren Buffett is a big supporter of this automaker as well, giving Lasry some prestigious company.
Tronox Ltd. (TROX), meanwhile, is a key smaller cap investment of fellow hedge fund manager Whitney Tilson, and shares of the titanium dioxide company are up nearly 10% year-to-date. A fairly long courtroom scuffle with Anadarko Petroleum (APC) may be responsible for a slight selloff of Tronox's stock late last month, but the situation has since improved, along with investors' sentiment. At 0.8 times its book value, Tronox represents a great value play, and a projected dividend yield near the 5% mark should appeal to nearly every income-oriented investor in the marketplace.
Lastly, we have CIT Group (CIT), which rounds out Lasry's top five. CIT was a key piece of the fund manager's portfolio in the third quarter as well, and the stock has already popped 9.8% since the start of 2013. Much of this bullishness can be attributed to the bank holding company's superb Q4 earnings report. CIT issued a bottom line beat of 42 cents, as its $1.03 total was driven by a drastic reduction in interest expenses. Lasry has some impressive company in CIT Group, including Bruce Berkowitz and Howard Marks.