By Eric Winter
David Dreman opened the doors to his investment firm, Dreman Value Management, over 35 years ago, picking up momentum through the years and reaching an AUM in 2007 of $22bn. Although he manages a smaller amount currently, the investor, researcher, and writer is still firmly planted in the "smart money" realm, which is why we have gone over his most recent 13F filed with the SEC. Our observations of hedge funds' 13Fs have led us to find a market-beating strategy that has returned 29% since last September (learn more here). Dreman made a number of changes in his favorite picks going from Q3 2012 to Q4; read on to see our take on his current top holdings.
Foster Wheeler, Ltd. (FWLT) remained Dreman's largest holding for the second quarter in a row despite a 3% reduction in position size between those time periods. FWLT has had a rough start to 2013, down almost 13% since the start of the year, primarily due to a big earnings miss on the first of this month. New orders fell a third compared to the same quarter a year ago, and guidance for this year came in at a disappointment compared to what analysts were expecting. On a more positive note, FWLT continues to win contracts in 2013 and made a strategic acquisition in Yonkers Industries. Billionaire Dan Loeb of Third Point owns 2.1mm shares of the company (read about his top holdings here).
Cooper Tire & Rubber Company (NYSE:CTB) muscled its way into the second highest spot in Dreman's portfolio with an allocation of $42mm. The replacement tire manufacturer saw added interest from the funds we track going into the end of last year; 20 funds out of the 400+ we track owned the company in Q4 2012, with only 15 claiming ownership in Q3. Despite continually crushing earnings each announcement (including a 35% beat last month boosted by a tripling in profits year over year), a number of sell-side analysts are tepid on the stock, citing slow growth and increased competition in the industry. Jim Simons of Renaissance Technologies recently boosted up his position size from 550,000 shares to 1.23mm.
Hanesbrands Inc. (NYSE:HBI) moved up a few notches from Dreman's fifth-largest holding in Q3 to his third-largest in Q4. The apparel manufacturer, famous for brands like Champion, Playtex, and of course, Hanes, still holds onto more than $40mm of the fund's capital. HBI has been on a steady climb up since summer last year, racking up a 40% gain in the past twelve months. Wall Street still expects more from this stock as well, with one year mean price targets indicating a possible 12.5% gain from current levels. Both revenue and earnings grew this past quarter compared to the same quarter last year, and EPS estimates give the stock a forward P/E ratio of 11, down from the trailing twelve month's measurement of 24. Billionaire Ken Griffin of Citadel Investment Group has $19mm invested in HBI.
Bank holding company Associated Banc-Corp (ASBC) slipped one spot from its position in Dreman's portfolio in the previous quarter, although the manager only reduced his 3.16mm share position by 2%. Holdings like ASBC ensure that the fund keeps its heavy focus on financial stocks (almost of a third of the AUM is invested in that sector). ASBC's performance stretching back a year came in at a percentage point lower than the market; income investors that were hoping for a huge winner found solace in the 2.2% dividend yield, though. After an inline earnings performance announced in January, the stock currently holds Perform and Equalweight ratings from Oppenheimer and Morgan Stanley, respectively. D E Shaw cut its position almost in half from Q3 2012 to Q4.
Crane Company (NYSE:CR) crept into the top five last quarter and takes the last spot on our list. The industrial product manufacturer is another stock that has appreciated well since last summer, gaining almost 50% since that time. Although CR missed slightly on earnings with its latest announcement for Q4, the company's drop in revenue was the result of growth-boosting charges devoted to acquisition and restructuring. CR also carries a respectable dividend of 2.3%, helping to make the stock a buy in the eyes of research firms like Canaccord Genuity and Ascendiant Capital. Billionaire Mario Gabelli of GAMCO Investors has a whopping 3.7mm shares.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article is written by Insider Monkey's writer, Eric Winter, and edited by Meena Krishnamsetty. They don't have any business relationships with any of the companies mentioned in this article and they didn't receive compensation (other than from Insider Monkey and Seeking Alpha) to write this article.