By Andrei Braghis
Harvard Management Company is a fully owned subsidiary of Harvard University. The fund, run by Jane Mendillo, has been very active during the first three months of 2013. Of the fund's five largest positions, three have been newcomers to the equity portfolio, according to its latest 13F filing with the SEC. The original filing 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 can benefit.
The top pick of Harvard Management is Hudson City Bancorp (HCBK), a local bank based in Paramus, NJ. Jane Mendillo has more than doubled the fund's stake in the bank, taking it to a reported value of $137 million. The stock price is not moving in a trend, fluctuating in the range of $8-$8.8. Hudson City stock has a beta of 1.21 and pays a dividend of $0.28 - a yield of 3.3%. The company reported revenues of $294 million and earnings per share (EPS) of $0.1, beating Wall Street's revenue expectation, but missing earnings estimates for the first quarter of 2013. Analysts reckon Hudson City will post earnings of $0.11 and revenues of $169 million for the second quarter.
The massive addition of H.J. Heinz Company (HNZ) sent it straight to the second place. Mendillo bought approximately 1.9 million shares, with a reported value of $136 million. The stock of H.J. Heinz has suffered little change since Berkshire Hathaway (BRK.A) (BRK.B) and 3G Capital announced their intention of taking the company private at a share price of $72.50. Since the start of 2013, the stock's price has advanced 24%, making it a very profitable investment for Harvard Management (assuming they bought the shares before the announcement).
Another new entrant is Virgin Media (VMED). The fund's management has made a big bet, purchasing 1.6 million shares with a reported value of $80 million. The stock's price has surged 35% in 2013 and is currently trading at approximately $50 per share. The recent financial report was not to investors' liking. Virgin Media posted weaker than expected earnings and revenue. For the first quarter, the company recorded revenues of £1.0 billion and earnings of £0.48 per share. The Wall Street expects earnings of £0.33 and revenues of £1.1 billion for Q2. The stock is mainly recommended as a Hold.
It seems Jane Mendillo likes to invest in takeover candidates. Another newcomer and fourth among the top possessions of the fund, Acme Packet (APKT), agreed on February 4th to be taken over by Oracle (ORCL). Oracle paid $1.7 billion in cash, which translates into $29.25 per share. When the announcement was made, shares were traded at approximately $24, thus Oracle offered to by them at a 20% premium. The takeover was completed on March 28th.
The only position in the top five to have been reduced in the first quarter is Pebblebrook Hotel Trust (PEB). Harvard Management has decreased their investment in the hotel trust by 25%, with the remaining shares' worth reported at $48 million. The Pebblebrook Hotel Trust's stock price has advanced 18% so far this year and is currently at approximately $27. Shares are traded at a trailing Price to Earnings (P/E) ratio of 160.58, while the forward P/E ratio is 15.43. With a beta of 1.07 and a dividend of $0.52, representing a yield of 1.90%, we wonder whether the decision to reduce the investment in Pebblebrook was a good one. Analysts expect the company to continue growing and expect revenues of $128.26 million and earnings of $0.43 for the second quarter.
Harvard Management has made important additions to their equity portfolio; two of the companies recently added have been taken over. However, the fund's management has reduced their holding of Pebblebrook, a stock that has done very well since the end of 2011 and is expected to do even better moving forward. We suggest investors pay attention to this stock.