By Matt Doiron
Highbridge Capital Management, a hedge fund run by billionaire Glenn Dubin, has filed its 13F for the first quarter of 2013. 13Fs disclose many of a fund or other major investor's long equity positions as of the end of the previous quarter; we track these filings in our database, allowing us to develop investment strategies based on the included information (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year). It can also be useful to look at individual managers' filings to see how they are approaching the market and possibly pick up some initial ideas for further research. Here are Highbridge's five largest stock holdings by market value as of the end of March (or compare these picks to those in previous filings):
Even after selling some shares, the fund's largest equity position was its nearly 27 million shares of Cosan (CZZ),which primarily provides sugar, ethanol, and other products derived from sugar cane. We'd note that Highbridge's sales may have been mere profit taking; the size of its position in dollar terms showed fairly little change. Wall Street analysts are firm believers in Cosan's prospects: their forecasts for earnings growth at the company imply a forward earnings multiple of 16 and a five-year PEG ratio of 0.4. We think it might be worth looking into as a potential growth stock.
Dubin and his team owned 6.8 million shares of Dish (DISH) as of the beginning of April, essentially unchanged from what it had in its portfolio three months earlier. Dish is currently dueling with Sprint over control of Clearwire Communications (where Sprint already has a sizable stake); at the same time, the company recently announced a competing bid for Sprint itself, which SoftBank is in the process of acquiring. However, it's unclear that Dish will actually be able to make a superior offer to the one which SoftBank has already proposed.
Auto and equipment rental company Hertz (HTZ) has been another of Highbridge's top picks. Revenue grew by 24% last quarter compared to the first quarter of 2012, and it's another company which is dependent on future improvements on the bottom line: the trailing and forward P/Es are 37 and 10, respectively. Of course, if Hertz can in fact hit its earnings targets it could turn out to be a good buy. We'd note that with a beta of 2.8 Hertz is highly dependent on macro conditions, and between this factor and its valuation the most recent data shows that 11% of the float is held short.
Highbridge slightly increased its stake in Priceline (PCLN) during the first quarter of the year to a total of about 160,000 shares. The travel reservations website is valued at 29 times its trailing earnings, as the market prices in quite a bit of future growth. Recent financial performance has been quite strong- in the first quarter of 2013 revenue rose 26% versus a year earlier, with net income climbing 34%- and we do like the industry, but that's a very high valuation and so we'd be skeptical that Priceline is a good buy right now.
The 13F showed Dubin more than doubling his holdings of offshore driller Transocean (RIG) with 2.9 million shares owned by the fund at the end of March. Transocean, recovering from a number of special items, trades at 9 times forward earnings estimates as the sell-side is generally bullish on offshore drilling related companies. This also results in a very low PEG ratio- 0.5, to be precise. Billionaire activist Carl Icahn has taken a large stake in Transocean in an effort to force the company to return more cash to shareholders, and recently won a seat on the Board of Directors (see Icahn's top stock picks).