Dallas-based Carlson Capital was founded in 1993 by Clint Carlson, and with offices in New York, Greenwich Conn., London and Houston, the firm currently manages over $6 billion across multiple hedge fund products. The firm employs a multi-strategy approach including risk arbitrage, convertible arbitrage, relative value arbitrage, distressed/ credit arbitrage, and long/ short strategies to make its investments. About 55% of the $6.9 billion in 13-F assets in its Q4 filing last month are invested in large caps, another 35% are mid caps, and the remaining 10% in small cap equities.
We analyzed Carlson Capital's Q4 13-F to determine its highest conviction bets (see table), selecting the largest buys and sells in size, where the buy/sell is also a significant proportion of its prior quarter position in that company. Based on that analysis, the following are its high conviction bullish bets in Q4 that are also trading at a discount compared to their peers (see table):
American Capital Agency (NASDAQ:AGNC): AGNC is a mortgage REIT that invests in single-family residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government-sponsored entity, or a U.S. Government agency. Carlson added $19 million in Q4 to its $11 million prior quarter position. Besides Carlson, other major institutions that added AGNC in Q4 included Credit Suisse that added 2.3 million shares to its 0.7 million shares prior quarter position, and Morgan Stanley that added 1.5 million shares to its 1.8 million shares prior quarter position.
AGNC shares have rallied strongly this year, and they trade at a current 6.3 P/E on a TTM basis, and at 1.1 P/B, compared to averages of 7.9 and 1.0 for its peers in the mortgage trust REITs group. Long-term, AGNC has been a stellar outperformer, up about 50% from its IPO in mid-2008; in comparison, the average REIT has been flat during this time period. Overall, AGNC has returned an impressive $937 million in dividends since its IPO in May 2008, and is among a select few that increased its dividend during that tumultuous period.
Huntington Bancshares Inc. (NASDAQ:HBAN): HBAN operates as the holding company for the Huntington National Bank that provides commercial and consumer banking services via 611 offices in Ohio, Michigan, Pennsylvania, Indiana, West Virginia, Kentucky and Florida. Carlson added $35 million in Q4 to its $24 million prior quarter position in the company. Other major institutions that significantly added to their position in Q4 include Wellington Management that added 20.7 million shares to its 24.6 prior quarter position, and T Rowe Price that added 5.2 million shares to its 1.2 million share position. HBAN is undervalued, trading at a discount 8-9 forward P/E and 1.0 P/B compared with the averages of 17.0 and 0.7 for Midwestern banks, while earnings are projected to increase modestly from 60c in 2011 to 64c in 2013.
Rio Tinto Plc (NYSE:RIO): RIO is a U.K. based company with global interests in mining. Along with a minor interest in uranium mining, RIO is also engaged in mining for aluminum, borax, copper, gold, iron ore, lead, silver, tin, zinc, titanium, diamonds, talc and zircon. Carlson added a new $24 million position in Q4. Besides Carlson, other major institutions that significantly added to their Q4 positions include Van Eck Associates that added 3.2 million shares to its 0.4 million shares position, and Bank of America that added a new 2.8 million shares position. RIO trades at a current 6-7 P/E and 2.0 P/B compared to averages of 20.1 and 2.2 for its peers in the miscellaneous mining group.
Applied Materials (NASDAQ:AMAT): AMAT provides manufacturing equipment, services and software to the semiconductor, flat panel display, solar photovoltaic (PV) and related industries worldwide. Carlson added a new $22 million position in Q4. Besides Carlson, other major institutions that added to their positions in Q4 included AllianceBernstein that added 15.8 million shares to its 27.5 million share prior quarter position, and Morgan Stanley that added 3.6 million shares to its 6.3 million share prior quarter position. AMAT trades at 10-11 forward P/E and 1.8 P/B compared to averages of 12.0 and 2.3 for its peers in the semiconductor equipment group.
Other high conviction commodity buys by Carlson in Q4 that are not under-valued based on a comparison to their peers, at least based on the typical earnings measure, include (see Table):
- Goldcorp Inc. (NYSE:GG), a Canadian company engaged in mining and exploration of silver, copper and gold throughout North and South America, in which it added $50 million to its $14 million prior quarter position;
- Silver Wheaton Corp. (NYSE:SLW), a Canadian buyer of purchase agreements for silver and gold from mining companies operating in Mexico, Sweden and Peru, in which it added $24 million to its $9 million prior quarter position; and
- Transocean Ltd. (NYSE:RIG), a provider of offshore contract drilling for oil and gas wells worldwide, in which it added $20 million to its $19 million prior quarter position.
The following are Carlson's high-conviction bearish picks based on their Q4 selling activity (see table):
- Fifth Third Bancorp (NASDAQ:FITB), a diversified financial services' holding company, engaged in commercial, retail and trust banking, data processing services, investment advisory services and leasing activities via 1,312 centers in 12 states, in which it cut out completely its $72 million prior quarter position;
- Atmel Corp. (NASDAQ:ATML), a manufacturer of a wide range of highly integrated semiconductor integrated circuit products, including microcontrollers, application specific ICs, non-volatile memory, and RF components, in which it cut out completely its $59 million prior quarter position;
- Centurylink (NYSE:CTL), an integrated communications company that provides a range of communications services, including voice, Internet, data and video services in the continental U.S., in which it cut out completely its $51 million prior quarter position;
- Peabody Energy Corp. (BTU), engaged in coal production and sale through 28 operations in the U.S. and Australia, in which it cut $21 million from its $27 million prior quarter position;
- Petroleo Brasileiro SA (NYSE:PBR), a Brazilian company engaged in the exploration, production, supply and distribution of oil and gas in Brazil and abroad, in which it cut out completely its $17 million prior quarter position; and
- Nabors Industries Ltd. (NYSE:NBR), a provider of oil, gas, geothermal and land drilling, land well and work-over services worldwide, in which it cut $17 million from its $34 million prior quarter position.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, 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.
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