By Adam Barnett
Clovis Capital Management is a long-short equity hedge fund mainly servicing high net worth individuals and institutions. It is managed by Michael Prober and Scott Scher, former employees of asset management firm Cramer Rosenthal McGlynn. The fund invests across different sectors, including financial services, information technology and retail, using both equities and options. See the original 13F here. 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 (discover the details of this strategy).
As of the latest 13F, the fund's largest holding is in Colony Financial Inc. (CLNY), a retail investment and finance company, specializing in real estate debt instruments. A small percentage of the fund's stake was reduced during from the prior quarter. The price action of CLNY has been very impressive over the past year, with the stock currently trading at $23.21, close to the 52-week high, up from a low of approximately $16 about a year ago. Core Earnings during the 2013 Q1 were $17.0 million, or $0.27 per share of common stock, with a very impressive dividend yield of 6.1%. The stock is currently only covered by three analysts - but all three of these are bullish.
Next in line is Digitalglobe Inc. (DGI), a company that sells remote sensing based imagery and geospatial information products and services. Clovis has reduced its stake by approximately one-third from the prior quarter. However, the price action of the stock has been impressive; it has nearly doubled in the past year, with the stock currently trading at $27.46, although the stock has approached the $30 barrier a number of times since early 2013 before retreating. In 2013, Q1 revenue was $127.6 million, a 47% rise from the prior-year quarter, although the company reported a net loss quarterly loss of $0.96 per diluted share, compared with net income of $0.08 per share. The loss was mainly caused by one-off costs associated with the January 31, 2013 merger with GeoEye. Analysts are a little more reserved about the stock, with just 6 out of 11 recommending it as a Buy.
Another core holding for Clovis is Safeway Inc. (SWY), the well-known supermarket chain. Clovis has increased its exposure to this security by comparison with the prior quarter; although reducing its stock holdings slightly, the fund has purchased call options. As of this writing, the stock has exhibited remarkably volatile price action, touching an annual high of $28 in April to about $24 currently, a 14% decline. This is due to a disappointing earnings report from the last quarter. SWY reported a 2013 Q1 profit of $118.9 million, or 49 cents a share, up from $72.9 million, or 27 cents a share, from the prior-year quarter. Revenue, however, remained flat at $9.99 billion, with a rise in profits caused by a one-off tax benefit. Analysts are reserved about the stock, with the majority recommending it as a hold. The current P/E Ratio is a value-friendly 9.12, so it's worth watching this stock, and a dividend yield of 2.9% is icing on the cake.
The next largest holding of Clovis is car rental company Hertz Global Holdings (HTZ), with stake of approximately $19.4 million, increasing from $16.6 million in the prior quarter, although this is due to the rise in the value of the stock rather than an increase in the size of shares held by Clovis. Clovis has actually reduced its exposure to this security by over 16% from the prior quarter. Price performance during 2013 has been impressive, rising from under $17 in January 2013, to just below $25 at the time of writing. The current P/E ratio is relatively high at 18.47, with forward estimates trending downward to 12.93.
Finally, the next holding is WP Carey (WPC), a real estate investment trust (REIT). According to the 13F, Clovis held $16.7 million during Q1 2013, down from $19.5 million in the prior quarter, primarily due to the fund scaling out of the stock. Adjusted funds from operations during 2013 Q1 were $1.03 per share, with the year-to-date price performance being very near the 52-week high at $74.64, rising from around $52 in January 2013.
Clovis Capital Management's equity portfolio reflects a broad diversification across many different sectors, and it has clearly performed well in the bull market of 2012-2013. It is notable, however, that it has scaled out of many of its core holdings, even though these have proved to be profitable. This suggests a cautious approach to the ongoing bull market. This said, amongst its investments, Colony Financial is particularly interesting given its impressive performance and the fund's continuing commitment to it.