By Eric Winter
We look forward to the close of each quarter, as it is the time when hedge funds are due to aggregate and release their holdings in an SEC document known as a 13F filing. Our proprietary research of these listings has led us to find a small-cap strategy that has returned 29% since its commencement in September of last year (learn more here). Mario Gabelli is the founder and CEO of $13bn GAMCO Investors, an acronym that stands for Gabelli Asset Management Company Investors. We have gone over his latest 13F for the last quarter of 2012 and have analyzed his five largest new positions below.
Of Gabelli's 40 new stock purchases made last quarter, Ryman Hospitality Properties (RHP), formerly known as Granite Hotel Properties, received the largest allocation with almost $200mm of the firm's funds. The REIT concentrates on hospitality assets in the urban and resort markets. Gaylord Entertainment Company merged into RHP in October of last year, and the combined company recently declared its quarterly dividend of $0.50 per share, forming a respectable annual yield of 4.5% (this is in addition to the special dividend of $6.84 per share paid out last December). John Paulson of Paulson & Co jumped into RHP last quarter with both feet as well, accumulating $165mm worth (see his top holdings here).
Kraft Foods Group, Inc. (KRFT) received 0.26% of GAMCO's billions, amounting to about $35mm. Big news came last year for the food and beverage giant when it split into two companies; the KFT ticker was dropped in favor of KRFT and MDLZ to represent the two new companies. KRFT manages the North American grocery operations and Mondelez International assumed the global snacks business. Thirty-seven of the 400+ funds we track piled into the new company in Q4 2012, with many hoping to bank on the high dividend yield offered (4.1%). Billionaire Israel Englander of Millennium Management bought about $27mm worth.
ADT Corp. (ADT) made the top three of the new additions with an allocation of about $33mm. ADT was also a popular stock amongst hedge funds last quarter, with over 10% claiming ownership of the security company. ADT recently announced that it is buying back $600mm worth of stock from Credit Suisse International in a move intended to bolster shareholder value. The company reported FQ1 earnings on January 30th that showed increases in net earnings and operating margin year over year. Billionaire George Soros of Soros Fund Management has a $27mm investment in ADT.
Shallow water oil and gas producer McMoRan Exploration Company (MMR) falls into our small-cap range of $1bn to $5bn with a market capitalization of $2.6bn. Freeport-McMoRan Copper & Gold (FCX) announced late last year its intention to buy MMR and fellow oil and gas company Plains Exploration & Production (PXP) for $9bn. The deal has brought on anger from FCX shareholders who believe management is paying well above market value for near-bankrupt MMR in order to pay FCX directors (who also sit on MMR's board) exorbitantly high prices for their stock in MMR. FCX currently owns 31.5% of McMoRan. Assuming no litigation or approval delays, the deal is expected to close in Q2 2013. Billionaire Leon Cooperman of Omega Advisors bumped up his shares to 9.1mm in the final quarter of 2012 (read about his fund's portfolio here).
GAMCO purchased about 155,000 shares of previously-mentioned Plains Exploration & Production Company last quarter, making it his fifth-largest new initiation and the last we'll cover on our list. The upstream oil and gas company has been roped into the acquisition deal by Freeport-McMoRan Copper & Gold as well, with FCX paying $6.9bn in cash for the Texas-based company. The purchase price for PXP is set at $50 per share, representing a possible 8% in merger arbitrage from current trading levels. James Dinan of York Capital Management built a hefty $50mm call position in PXP last quarter.