By Eric Winter
Although earnings season is winding down, one of the most important times for hedge fund managers (and one of the most exciting for analysts) is still in full effect. We're talking about the 13F filing season, which is when declarations are made by hedge funds showing their portfolio make-up, including top holdings, new holdings, recent divestments, etc. Young billionaire Chase Coleman's fund just released its 13F for Q4 2012. Alongside his fellow portfolio managers Feroz Dewan, Scott Shleifer and Lee Fixel, Coleman initiated a number of new positions last quarter, which we have analyzed below. Our research on hedge fund manager's holdings showed that hedge funds' consensus small-cap picks beat the market by 18 percentage points per year (read more details here). Let's take a look at Coleman's largest new additions to his fund, Tiger Global Management.
Of the thirteen new positions bought, Starz (STRZA) was Coleman's largest initiation, using up over 7% of the fund's assets. From having no position to building such a large one so quickly shows the conviction Coleman has in the company, possibly indicating large expected upside from Tiger's managers. The stock has already had quite the run-up in the past twelve months, almost doubling in value. Since 2013 started, it has chalked up a 45% gain, meaning that at the very least, Coleman has been able to take part in that run-up. The paid subscription entertainment channel was recently spun off as its own entity, becoming independent of Liberty Media Corp (LMCA). Jon Thaler of JAT Capital Management built a $188mm position recently.
Catering primarily to commercial fleets and oil companies, FleetCor Technologies, Inc. (FLT) provides specialized payment services. Coleman made a $140mm investment in FLT in Q4 2012, managing to capture the tail end of a 90% run up that the stock has had since this time last year. FLT's push up might be overheated, as Wall Street has formed a consensus price target a year out under current levels, indicating a correction is in order. FLT recently reported earnings on February 7th, with operating revenues increasing a staggering 48% year over year. The company's full year earnings improved 38% year over year. Hound Partners tacked on more than $40mm to its position in this past quarter.
The McGraw-Hill Companies, Inc. (MHP) acted as Coleman's third largest new addition, garnering an investment north of $100mm. The $12.8bn market cap company is best known for its publishing arms and information services in the field of education, finance and commodities. MHP consistently wowed analysts each quarter by beating expectations, most recently earning an upgrade from Raymond James for its performance. Analysts still expect much more appreciation from here, signaled by a high price target a year out. We like MHP for its growth potential as well as its income potential, highlighted by its 2.5% dividend yield. Billionaire Tom Sandell of Sandell Asset Management recently unwound the majority of his positions.
Motorola Solutions, Inc. (MSI) has given investors a respectable return in the last year, more than doubling the market's gains while paying a dividend yield of 1.7%. MSI is a lead player in its main area of focus - that is, providing communication solutions to the government, beating out the market share of its next competitor by 3-4 times. It continues to improve its product offerings with a new tablet line running on Windows 8, due for release towards the end of 2013. MSI saw a decline in its price-to-earnings calculations from past earnings to future projected earnings, a good sign in our book. Legendary investor George Soros has $144mm invested (see his top picks here).
Coleman's last new position we'll cover is internet radio provider Pandora Media, Inc. (P). The company's ad-based revenue model has it still teetering in negative earnings territory despite recently turning its first profit, and Wall Street is still nervous to give P resounding buying support. Many analysts actually believe the stock is overvalued, calling for a 14% retracement from current levels to be more in-line with their expectations. Billionaire Ken Griffin most likely agrees, recently dropping his 2.6mm share position down by 2mm shares, as indicated by his Q4 13F.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.