Hedge Fund Hawkeye Capital's Top Stock Picks

Includes: BP, CIT, FINL, KS, SAH
by: Insider Monkey

By Andrei Braghis

Richard Rubin, the founder and manager of Hawkeye Capital, has made some important changes to the fund's top equity positions. A new entrant made the top five, and the remaining four are some intriguing investments as well. The original 13F can be seen here. It's important to track hedge fund sentiment because it has been found that for investors who know where to look, market outperformance is possible (discover the secrets here).

Number one

The top pick of Hawkeye is KapStone Paper and Packaging Corp. (NYSE:KS), constituting almost a third of the fund's equity portfolio. During the first quarter of 2013, Rubin has slightly decreased the fund's stake in the paper products manufacturer. The reported value of the remaining investment is $84,6 million. The stock has been in an uptrend in 2013, advancing 28% to a current price of approximately $29. It is traded at a trailing Price to Earnings (P/E) ratio of 21.23 and has a forward P/E ratio of 11.10, which suggests that the market expects the company to perform better in the near future. KapStone has a beta of 1.25 and pays a dividend of $2, representing a yield of 6.9%. Analysts are bullish on this stock, recommending it mainly as a Buy.

The best of the rest

A significant addition was made to the fund's position in Finish Line (NASDAQ:FINL). Rubin has increased Hawkeye's stake in the mall-based retailer by 19%, with the total investment valued at $40.8 million. With the stock price rising 10% in 2013, Rubin has been handsomely repaid. Shares are traded at a trailing P/E ratio of 15.12, significantly lower than the industry average of 25.90. With a beta of 0.56 and a dividend of $0.25 - a yield of 1.2% - this stock is a rather safe investment. The financial results for the first quarter have beat the Wall Street estimates in terms of earnings but failed to meet expectations in terms of revenue. Finish Line posted earnings of $0.76 per share and revenues of $442.7 million. For the current quarter, the market expects the company to register Earnings Per Share [EPS] of $0.16 and revenues of $341.7 million.

A new addition to the equity portfolio of Hawkeye is BP (NYSE:BP). The fund's management has bought 960,000 shares in the oil giant, valuing the investment at $40.6 million. In 2013, the stock's price has been fluctuating around the $42 mark, without a clear trend. The stock has a beta of 2.21, which makes it a very volatile one, and pays a dividend of $2.10 - a 4.9% yield. Analysts have a good outlook for BP, with 7 of them recommending it as a Hold and 7 branding it a Buy or Strong Buy. They have also set a price target range of $45-$61, with shares currently trading at a little over $43 a share.

Rubin has made a 19% reduction in the fund's investment in Sonic Automotive Inc (NYSE:SAH), an automotive retailer. The remaining holding is reportedly worth $26.9 million. The stock is traded at a trailing P/E ratio of 14.82 and has a forward P/E of 10.63, suggesting the market expects that Sonic Automotive will deliver better results with time. The beta of 1.9 makes it a rather risky investment. The stock also pays a slight dividend yield of 0.4%. Analysts have a good opinion of the stock: 3 analysts recommend it as a Strong Buy, while 4 of them see it as a Buy. They have set a price target range of $22-$30, with the stock currently trading shy of $24, a 12% increase since the start of the year.

Last but certainly not least is CIT Group Inc. (NYSE:CIT). Rubin and his team sold 33% of the shares owned by Hawkeye at the start of the year, with the remaining investment valued at $21.8 million. Shares are currently trading at $44.15, after a 12% increase since the beginning of 2013. The recent financial results have generated mixed feelings among investors. CIT Group managed to beat Wall Street's revenue expectations but failed to meet the earnings estimates. The company posted EPS of $0.81, after posting a loss of $2.22 in the year-earlier quarter and revenues of $355.8 million, which have decreased by 68% since the first quarter of 2012.

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, Andrei Braghis, and edited by Jake Mann. 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.