Consider Fairpointe Capital's New Stock Picks

by: Insider Monkey

Thyra Zerhusen, a German and Swiss educated money manager at Fairpointe Capital, was named “The World’s Greatest Investors” in 2010 and 2011 by Smart Money. In addition to these awards, Aston/Fairpointe Mid Cap Fund, a mutual fund sub-advised by Fairpointe Capital, received two Lipper Best Fund Awards in 2011 in the Mid-Cap Core Fund category. We believe that by focusing on Fairpointe’s best stock picks, investors are more likely to outperform the market in the long term.

Zerhusen and her team try to identify companies with unique products, strong fundamentals and potential to grow. Her fund has a fairly low turnover rate. Zerhusen keeps a portfolio of about 40 stocks, many of which she will hold for years. During her tenure, the fund had annualized return of 13%, beating S&P 500 by about 11 percentage points.

Fairpointe disclosed owning $50.6 million worth of CA Inc (NASDAQ:CA) at the end of September. Fairpointe did not report having any shares of CA in second quarter. CA Inc is an independent enterprise information technology management software and solutions company. The company reported revenue of $1.2 billion for the third quarter of 2011, up from $1.09 billion for the same quarter last year. Net income was $236 million, compared with $222 million last year. CA returned 12.67% since the end of September, beating the SPY index by one percentage point. Frank Brosens’ Taconic Capital also had $384 million invested in CA at the end of second quarter.

Fairpointe also reported initiating a brand new $46 million in Northern Trust Corp (NASDAQ:NTRS), a financial holding company that provides asset servicing, fund administration, investment management, banking and fiduciary solutions for corporations, institutions and individuals worldwide. The company reported net income of $170.4 million, or 70 cents per share for the third quarter of 2011, up from $155.6 million, or 64 cents per share in the same period last year. Revenue rose 9% to $971.5 million, beating analysts’ estimates of $962.8 million. NTRS returned 14.41% since the end of September. John Paulson had $46 million invested in NTRS. Israel Englander, Chuck Royce and Jim Simons all had a certain portion of their portfolio invested in NTRS.

Over the third quarter, Fairpointe increased its position in Scholastic Corporation (NASDAQ:SCHL) by 5% to $43.6 million. Scholastic is a global children’s publishing, education and media company. For three months ending August 31, 2011, the company reported revenue of $318 million, compared with $290.9 million for the same period last year. It suffered net loss of $27.10 million but the number is still better than last year’s $35.20 million net loss. SCHL lost 3.47% since the end of September. Steve Shapiro’s Intrepid Capital Management largely increased its position in SCHL by 103% over the second quarter.

Fairpointe sold out Beckman Coulter (NYSE:BEC) and Kinetic Concepts (NYSE:KCI) over the third quarter. Both stocks were inactive now as Beckman Coulter was acquired by Danaher Corporation (NYSE:DHR) and Kinetic Concepts was merged with Apax Consortium. But Fairpointe did not disclose owning any shares of Danaher or Apax in its latest 13F. Fairpointe also sold out Dell Inc (NASDAQ:DELL), Microsoft Corp (NASDAQ:MSFT), US Bancorp (NYSE:USB), and Western Union (NYSE:WU) during the third quarter, but did not invest much in these stocks in the previous quarter.

Disclosure: I am long MSFT.

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