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By: Adam Barnett

Founded by former sell-side analyst John Osterweis, Osterweis Capital Management is a large hedge fund managing the money of high net-worth individuals, endowments and various foundations. A quick look at the top 5 equity positions of the fund can be a good starting point for your own research. See the original first quarter 13F here.

Why this is important

Retail investors can benefit from watching hedge fund sentiment, as quantitative analyses have revealed that the best picks of the best money managers can beat the market by as much as 18 percentage points a year.

Let's get started

Valeant Pharmaceuticals (NYSE:VRX) is the fund's largest holding, with 694,203 shares directly held at the time of the 13F filing, worth about $52 million. This is a considerable fall from the prior quarter when 788,168 Valeant shares were held. During the first quarter, Valeant posted a loss of $27.5 million, or 9 cents a share, compared with a loss of $12.9 million, or 4 cents, in the corresponding quarter of the prior year, although this result beat analyst expectations. The stock is currently trading at $74.64, having touched its 52-week high of $76.57 in early April. Its forward P/E is forecast at an attractive 12.97.


Next up is aircraft leaser Air Lease Corp (NYSE:AL), with Osterweis holding 1,556,222 class A shares directly at the time of the 13F filing, worth about $45.6 million. This is a slight fall from the prior quarter's 13F when 1,585,797 shares of class A stock were stated to be held. During the 2013 first quarter, diluted EPS increased by 46% to $0.38 per share in comparison with $0.26 per share for the corresponding quarter in the prior year. Revenues also increased 45% to $192 million compared with $133 million for the prior year. Price action has been strong over the past few weeks in response, with the company touching its 52-week high of $31 last week, falling to $29.62 at the time of writing.

The fund also has a substantial stake in financial services and insurance giant Alleghany Corp. (NYSE:Y), with the 13F stating 124,265 shares of the company being directly held, worth about $49.2 million. This is substantially the same as the amount held in the prior quarter. For the first quarter, Alleghany reported net earnings of $196.3 million, or $11.67 per diluted share, compared with $560.1 million, or $51.06 per diluted share, for the corresponding quarter of the prior year. Price action has been quite volatile, but still strong, during 2013, with the stock touching its 52-week high of $399 last week, before retreating to about $392 at the time of writing. Its P/E Ratio is calculated to be 19.55, while it trades at a modest forward P/E of 16.19.

Continuing the diversified theme, next in line is public utility American Water Works (NYSE:AWK). The 13F states that the fund directly held 1,021,342 shares of American Water Works during 2013's first quarter, worth about $42.3 million. This is a reduction from the 1,089,572 shares held in the prior quarter. American Water Works reported a fall in profits for this quarter when compared with 2012 Q1 - $55.4 million, or 31 cents a share, compared with $64.8 million, or 37 cents a share. However, revenue did increase 6.4% to $680.9 million. Both of these results disappointed analyst predictions. The stock is currently trading near $42, and touched its annual high of $43.09 last week. Shares sport a P/E of 20.07, with a slightly lower forward P/E near 19.0.

Rounding out the top five, we move to yet another sector, with movie theater owner Cinemark Holdings (NYSE:CNK). The latest 13F states that the fund directly held 1,398,727 shares of common stock worth about $41.2 million at the time of filing. During the quarter, Cinemark reported a profit of $32.6 million, or 28 cents a share, down from $42.1 million, or 37 cents a share, a year earlier - a 23% drop. Revenue fell 5.4% to $547.8 million. Touching a 52-week high of $31.77 in early May, the stock is currently trading around $30. Cinemark's P/E ratio is currently 21.79, while its forward P/E trades near 17.

Final thoughts

The top five equity holdings described in Osterweis' latest 13F represent a highly diverse group of large caps, with only minor changes across quarters, indicating a long-term investment view. If this matches your investment style, all of these stocks may be worth adding to your watchlist.

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, Adam Barnett, 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.

Source: 5 Stocks Mega-Fund Osterweis Capital Is Bullish On