Eton Park Capital is the hedge fund managed by former Goldman Sachs partner, Eric Mindich. The fund opened in 2004 to much fanfare and after stumbling out of the gates, Eton Park has developed a solid reputation as one of the financial markets' smart money investors. The fund employs a multi-strategy investment approach.
iShares Silver Trust (SLV)
The fund owns a lot of SPDR Gold Trust (GLD) shares as well as gold miners. According to the most recent Form 13F, Eton Park owned 2,328,000 shares of GLD and $838.92 million worth of GLD call options as of March 31, 2011.
During 2011, SLV and GLD tracked each other closely but the relationship diverged in February 2011 and the spread peaked in late April 2011. That's when GLD increased around +10% year to date while SLV returned around +65% year to date. At the frothiest point of the silver rally, we detailed a plan of action in, "What to do in case of a silver crash." The silver miners do offer some discount compared to the underlying spot metal price. So considering that Eton Park predominately favors gold over silver, it may make sense for the fund's marginal increase in silver exposure to come from SLV versus individual miners.
Since the early May 2011 swoon, the divergence between SLV and GLD has steadied to around 10% year to date. Considering the massive investor interest in SLV earlier this year, Eton Park should consider diversifying into silver in light of the precious metal's correlation to gold. Both metals are influenced by similar macro factors.
Goldman Sachs (GS)
The fund already owns a substantial stake in Morgan Stanley (MS). What's even more unusual about this absence is that Eric Mindich, the fund's founder, had a successful career at Goldman Sachs. This could highlight the degree to which investors are afraid of Goldman's political baggage. Still, we think this is a strange distinction. Morgan Stanley and Goldman are subject to similar macro risks, but Goldman has a reputation for being the superior company. As such, short of a personal feud, Eton Park should also consider investing in Goldman Sachs. Despite the headwinds, we like Goldman Sachs and as such, had previously highlighted the company among 7 Dividend Paying Stocks Near 52 Week Lows.
Goldman Sachs trades at a trailing P/E of 14.34, a forward P/E of 6.96 and a price/book ratio of 0.99. In comparison, Morgan Stanley trades at a trailing P/E of 10.92, a forward P/E of 7.58 and a price/book ratio of 0.71.
SIRIUS XM Radio (SIRI)
Eton Park owns positions in DirectTV (DTV) and Dish Network (DISH). The fund could be interested in another part of the Liberty Media empire. Sirius XM and the satellite TV providers are not peers, but they operate with many similarities. Not only should Eton Park Capital consider Sirius as a potential investment, Sirius could be viewed as an acquisition candidate or merger partner by one of the satellite TV companies. Sirius XM is not cheap based on standard measures. The company trades at a trailing P/E of 198, a forward P/E of 28.29 and a price/sales of 2.80. In contrast, here are the valuations for the TV satellite providers:
DISH trades at a trailing P/E of 9.65, a forward P/E of 9.89 and a price/sales of 0.99.
DTV trades at a trailing P/E of 17.53, a forward P/E of 11.40 and a price/sales of 1.48.
Still, the trailing performance underestimates Sirius' value and as such, we listed the company among 5 Stocks That Could Double in Price. The company's financials are likely to improve as it expands its reach within the U.S. auto market. In addition, Sirius will likely unlock its pricing power in the coming year. It is unclear just how much flexibility it has on this front, but at the very least, this is hidden upside.
Finally, the company's user base is valuable because they has above average desirability, considering they own cars and are willing to pay for a luxury product in lieu of free terrestrial radio. Premium users drive premium stock valuations. Once you include the catalyst value of Sirius' appeal as an attractive takeover candidate, the stock becomes an interesting opportunity.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GS, MS, SIRI, DTV, DISH over the next 72 hours.