Top Buys and Sells From Hedge Fund Manager Richard Perry

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 |  Includes: BJS, BMC, C, CEPH, ENH, GNW, GOOG, IRM, ITT, LOW, POT, RBS, SNY, SUN, TEVA, THC, UAM, WMB, WRK, YHOO
by: GuruFundPicks
Summary: New York-based hedge fund Perry Corp. manages $7.1 billion in assets, including $2.4 billion in U.S. equities. Three attractive buys from the fund portfolio include Motorola Mobility (NYSE:MMI), Yahoo! Inc. (NASDAQ:YHOO) and Williams Companies (NYSE:WMB).

New York-based hedge fund Perry Corp., founded in 1988 by CEO Richard Perry and Chief Investment Officer Paul Leff, manages $7.1 billion in assets, including $2.4 billion in U.S. equities. The firm has offices in New York, London and Hong Kong, and manages the Perry Partners, Perry Commitment, Perry Real Estate and Perry Partners International hedge funds. The fund has returned 14% annual returns over the last ten years versus 1.31% returns for the S&P 500 over the same period.

The fund holds a relatively concentrated portfolio of 65 positions, with 40% of its holdings in large-caps, a third in mid-caps, and the remaining 25%-30% in small-caps and micro-caps. Its portfolio turnover is 200% implying an average holding period of six months. Based on the most recent SEC 13-F filing for the March 2011 quarter, we determined that the portfolio is over-weight financials (29%), services (17%) and healthcare (18%) sectors, and it is under-weight basic materials (2%), energy (12%), utility (0%) and transportation (0%) sectors, compared to the weighting of these sectors in the overall economy.
The following summarizes its largest new buys and sells in the latest reported 13-F filing for the March 2011 quarter, and updated based on any 13-G filings since the end of the quarter:
  • Financial sector: Perry cut $280 million from its $900 million prior quarter position, including selling completely out of the $348 million position in Endurance Specialty Holdings (NYSE:ENH) that offers reinsurance and insurance in the catastrophe, property, casualty and agricultural lines of business. It entered a new $123 million position in Genworth Financial Inc. (NYSE:GNW) that offers life and long-term care insurance, annuities, asset management services and mortgage insurance worldwide. The position in ENH was opened in low-$20s in early 2003, so the selling in the mid-$40s last quarter was profit-taking.
  • Healthcare sector: Perry added $190 million to its $195 million prior quarter position, including adding $80 million to its prior $124 million position in French pharmaceutical developer Sanofi (NYSE:SNY), adding a new $53 million position in biotech Cephalon Inc. (NASDAQ:CEPH), and adding a new $51 million position in hospital operator Tenet Healthcare Corp. (NYSE:THC). CEPH has since been acquired by Israeli pharmaceutical developer Teva Pharmaceutical ADR (NYSE:TEVA). The position in Sanofi is from the conversion of Genzyme shares that was acquired by SNY in October 2010; the position in Genzyme / SNY was opened in the low-$30s in the summer of 2010. Perry's adding $80 million to that original position is a sign of high conviction in this position. SNY trades at a forward P/E of less than 8, near the lows of its historic trading range. However, revenue is projected to be flat going forward while margins are projected to drop, so the stock is not that attractive from a fundamental standpoint. THC trades at a premium 15 forward price-to-earnings (P/E) ratio and is not that attractive a buy right now.
  • Service sector: Perry added $295 million to its $70 million prior quarter position, including adding a new $80 million position in warehouse club operator BJS Wholesale Club Inc. (BJS) and adding another new $79 million position in Iron Mountain Inc. (NYSE:IRM) that provides records management, data protection and information destruction services to corporations. BJ has been up strongly recently based on acquisition rumors, and is not an attractive buy as it trades at a premium 18 forward P/E, near the top of its historical P/E range. IRM has been up strongly recently, up 65% in the last seven months, trading at a premium 28 forward P/E.
  • Technology sector: Buy Motorola Mobility Holdings (MMI) and Yahoo! Inc. (YHOO). Perry added $200 million to its $60 million prior quarter position, including a new $101 million position in BMC Software Inc. (NASDAQ:BMC) that provides mainframe, distributed systems, service and identity management software applications for enterprises, a new $59 million position in wireless handset manufacturer Motorola Mobility Holdings, and a new $55 million position in Internet search, content and shopping service company Yahoo! Inc. MMI is an attractive buy as it trades at forward 15 P/E based on fiscal year 2012 earnings, and it is projected to grow revenue and margins strongly in the near term. Furthermore, analyst targets for MMI are in the mid-$30s to $40 range. BMC trades at a forward 16 P/E, which is mid-range based on its historic P/E range. It has been up strongly 60% in the last year while revenues and earnings are up only in the teens. YHOO is projected to grow earnings at a modest pace while it is trading at a more reasonable forward P/E of 18, which is near the bottom of its historic P/E trading range. Furthermore, analyst targets for YHOO are in the $20+ range, almost 50% above current levels.
  • Energy sector: Buy Williams Companies (WMB). Perry added $185 million to its $75 million prior quarter position, including a new $90 million position in oil refining and marketing company Sunoco Inc. (NYSE:SUN) and a new $83 million position in Williams Companies that is engaged in the exploration, production, gathering, processing and transportation of natural gas, mainly in the U.S. WMB is an attractive buy as earnings are projected to grow strongly from 1.28 in 2010 to 1.74 in fiscal year 2012, and analyst targets are in the high-$30s to $40 range.
  • Basic materials sector: Perry cut $140 million out of its $180 million prior quarter position, including selling out of the $177 million position in Potash Corp. of Saskatchewan (NYSE:POT), a manufacturer of fertilizers and related industrial and feed products in the U.S., Canada, and Trinidad.
Table
Company
Ticker
Action
Market Value at end of March 2011 Quarter
Change in Value from Prior Quarter
Percent of Portfolio
Percent Shares Owned
Top Buys and Sells
Endurance Specialty Hldgs.
Drop
$ 0 million
($349) million
0.00%
0.00%
Potash Corp. Sask. Inc.
Drop
$ 0 million
($177) million
0.00%
0.00%
Genworth Finl Inc.
New
$ 123 million
$123 million
5.16%
1.86%
BMC Software Inc.
New
$ 100 million
$100 million
4.23%
1.14%
Sunoco Inc.
New
$ 90 million
$90 million
3.80%
1.63%
Williams Cos.
New
$ 83 million
$83 million
3.51%
0.45%
Sanofi
Add
$ 203 million
$80 million
8.56%
0.22%
BJs Wholesale Club Inc
New
$ 80 million
$80 million
3.37%
3.01%
Iron Mountain Inc.
New
$ 79 million
$79 million
3.32%
1.26%
ITT Corp.
New
$ 62 million
$62 million
2.61%
0.56%
Motorola Mobility Hldgs Inc.
New
$ 59 million
$59 million
2.46%
0.81%
Yahoo! Inc.
New
$ 55 million
$55 million
2.31%
0.25%
Cephalon Inc.
New
$ 53 million
$53 million
2.24%
0.91%
Lowes Co.
Add
$ 66 million
$52 million
2.78%
0.19%
Tenet Healthcare Corp.
New
$ 51 million
$51 million
2.13%
1.39%
Rock-Tenn Co.
RKT
New
$ 50 million
$50 million
2.12%
1.84%
Top Holdings
Royal Bank of Scotland Plc
Same
$ 284 million
$0 million
3.25%
12.13%
Universal American Corp.
Same
$ 156 million
$0 million
6.57%
9.00%
Citigroup Inc.
Cut
$ 131 million
($9) million
5.52%
0.10%
Click to enlarge

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.