New York-based hedge fund Tremblant Capital, with $1.8 billion in equity assets, was founded in 2001 and is led by founder and CEO Brett Barakett. If the name rings a bell, it is probably because Brett’s brother Timothy ran the Atticus Capital hedge fund company. Prior to founding Tremblant, Brett was a portfolio manager at global macro hedge fund Moore Capital. Tremblant manages the Tremblant Partners Master Fund, the Tremblant Concentrated Fund and the Tremblant ELS Master Fund. The firm deploys its capital primarily using a long/short equity model, with an additional event-driven strategy that focuses on the consumer and retail sectors.
The fund holds a concentrated portfolio of 40 positions, with 50% of its holdings in large-caps, 25% in mid-caps, and the remaining 25% in small-cap equities. Its portfolio turnover is 80% implying an average holding period of 15 months. Based on the most recent SEC 13-F filing for the March 2011 quarter, we determined that the portfolio is over-weight services (34%), transportation (6%), consumer cyclical (7%) and consumer non-cyclical (13%) sectors, and is under-weight energy (0%), basic materials (0%), capital goods (2%) and technology (11%) 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.
Services sector: Buy: Imax Corp. (IMAX). Tremblant added $55 million to its $530 million prior quarter position in the sector. It added a new $36 million position in home furnishings retailer Pier 1 Imports Inc. (PIR), added $30 million to its $52 million position in projection and sound systems manufacturer Imax Corp. and added $27 million to its $36 million position in restaurant chain Cheesecake Factory Inc. (CAKE). Furthermore, it dropped its $57 million position in apparel retailer Gap Inc. (GPS).
The position in IMAX was opened in the spring of 2009, probably in the $5-7 range, so Tremblant adding more to this position, contrary to lightening up, in the $30 last quarter is a high conviction buy. IMAX trades at a forward price-to-earnings (P/E) ratio of 20 and is projected to grow revenue at 22% and earnings at 50% to $1.50 for the fiscal year ending December 2012. Of the 18 analysts covering the company, 11 rate it a buy, five a hold and two a sell, and the price targets are in the $40s. The IMAX story is probably still in the beginning to mid-innings as there currently are only 518 theaters with IMAX systems installed; even at a modest growth rate in new theater installs, the company’s revenues and earnings should continue to grow at high rates for the foreseeable future. Based on that, we believe IMAX stock is attractively priced, and can be accumulated at current levels.
Healthcare sector: Sell: Omnicare Inc. (OCR). Tremblant maintained unchanged its $250 million position in the sector. It cut $25 million from its $77 million position in Omnicare Inc. The position was opened in the mid-$20s in early 2009, and Tremblant sold a portion of it at a slight profit in the last quarter in the high-$20s. OCR trades at a projected 13 forward P/E, near the bottom of its historic P/E range. Earnings are projected to be flat this year at $2.10 and rise modestly to $2.37 for fiscal year 2012. Recent analyst activity has put a price target on the company in the high-$20s to low-$30s, where it currently trades, and the stock is up almost 60% in the last 10 months while earnings are flat year-over-year. The stock appears fully priced, and we would sell it at current levels.
Consumer non-cyclical sector: Sell: Green Mountain Coffee Roasters Inc. (GMCR). Tremblant cut $210 million from its $430 million position in the sector, including cutting $137 million from its $179 million position in Green Mountain Coffee Roasters Inc. and dropping its $39 million position in Kraft Foods Inc. (KFT). The position in GMCR was opened in the $8-9 range at the end of 2007, so the selling last quarter in the $40s/$50s was profit-taking. However, the fact that Tremblant cut most (75%) of its position would indicate that it agrees with our contention that with the recent parabolic 10-fold rise in the stock since early 2009, there is significant downside execution risk in the risk whereas for the short-term the upside may have already been baked into the stock. While GMCR is a story stock, with some even calling it the next Coca-Cola (KO), and there might be long-term upside in the stock, it appears that in the short-term the downside risk outweighs the upside opportunity, and we would be sellers here.
Consumer cyclical sector: Buy: Visteon Corp. (VC). Tremblant added $80 million to its $40 million prior quarter position in the sector, including adding a new $69 million position in Visteon Corp., a manufacturer of climate control systems, cockpit modules, and chassis products to automotive OEMs. VC came out of bankruptcy late last year and currently trades at a forward 12 P/E. The company’s revenue is projected to rise almost 10% and earnings are expected to shoot up 74% to $5.17 in the fiscal year ending December 2012. It has been beating analyst estimates in recent quarters by wide margins, and of the four analysts covering the stock, three rate it a buy and one a hold. Analyst price targets for VC stock are in the mid-$80s, a significant upside from the current $63 price.
It seems that VC’s bankruptcy is history now, as it is now much leaner after having closed about 50 plants. Also, it is not as concentrated on Ford Motor (F) as it once was, as F now accounts for only 25% of its business, thereby removing that risk. Furthermore, if the global recovery takes hold, then the auto industry should fare very well, making VC an attractive buy at current levels.
Market Value at end of March 2011 Quarter
Change in Value from Prior Quarter
Percent of Portfolio
Percent Shares Owned
New 13G 5% Ownership Filing Since End of March 2011 Quarter
Top Buys and Sells
Green Mountain Coffee Roasters Inc.
$ 42 million
$ 69 million
$ 60 million
$ 0 million
Kraft Foods Inc.
$ 0 million
Pier 1 Imports Inc.
$ 36 million
$ 82 million
Kinder Morgan Inc.
$ 28 million
Cheesecake Factory Inc.
$ 64 million
$ 52 million
$ 47 million
$ 37 million
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.