Greenwich, CT-based Newgate Capital Management, founded in 1982 by Sonia Rosenbaum, manages over $3 billion in assets, including $1.36 billion in 13-F assets as per its Q1 2012 filing with the SEC last week. The firm uses top-down, value-oriented approach in making investments in emerging markets and in natural resource sectors, including companies involved in mining, processing and transportation of natural resources of any kind. Its global resources portfolio has returned 8.3% annualized return since inception in 2004 compared to the 1.4% return of the DJ-UBS Commodities Index. The firm holds a moderately diversified portfolio of over 160 positions, with almost 50% of the 13-F assets deployed in natural resource companies, in the basic materials and energy sectors.
We analyzed Newgate's equity holdings in its Q1 2012 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 positions in basic materials and energy sectors, that are also trading at a discount compared to their peers (see Table):
Southern Copper Corp. (SCCO): SCCO is one of the largest integrated copper producers in the world, and is engaged in the mining, exploring, producing, smelting and refining of copper and other minerals in Peru, Mexico and Chile. Newgate added a new $13 million position in Q1. Other leading institutions with large bullish bets on SCCO in Q4 (the latest quarter for which most institutional filings are available) included New York-based Bank of New York Mellon Corp., with over $1.2 trillion in assets under management, including $239 billion in 13-F assets at the end of Q4, adding 1.2 million shares in Q1 to its 1.8 million shares prior quarter position, and Credit Suisse adding a new 0.7 million share position in Q1.
SCCO shares are about flat for the year after a strong January rally that lifted shares to almost 20% at their peak. Its shares retreated after a disappointing Q4 in mid-February in which it missed analyst earnings and revenue estimates, and they trade at a current 11.3 P/E (on a TTM basis) and 6.3 P/B compared to averages of 11.6 and 0.7 for its peers in the non-ferrous mining group.
Halliburton Company (HAL): HAL provides a variety of equipment, and maintenance, engineering and construction services to the oil and gas exploration and production (E&P) industry, including reservoir completion and drilling services. Newgate added a new $10 million share position in Q1. Other leading institutions with large bullish bets on HAL in Q4 (the latest quarter for which most institutional filings are available) included mega fund manager JPMorgan Chase & Co., with $1.3 trillion in assets under management, including over $217 billion in 13-F assets, adding 5.9 million shares in Q1 to its 4.2 million share prior quarter position, and Atlanta-based investment powerhouse INVESCO Ltd., with over $650 billion in assets under management, including $174.4 billion in 13-F assets, adding 4.6 million shares in Q1 to its 17.2 million share prior quarter position.
HAL is undervalued, trading at 7-8 forward P/E and 2.3 P/B compared to averages of 14.2 and 3.3 for its peers in the oil field services group, while earnings are projected to increase at a compound 13.6% annualized rate from $3.35 in 2011 to $4.32 in 2013.
Forest Oil Corp. (FST): FST is engaged in the exploration and production of oil, natural gas and natural gas liquids primarily in North America, with interest in the Texas Panhandle, the Western Canadian Sedimentary Basin in Alberta and British Columbia, the Eagle Ford Shale in South Texas, and the East Texas/North Louisiana area. Newgate added a new $7 million share position in Q1. Other leading institutions with large bullish bets on FST in Q4 (the latest quarter for which most institutional filings are available) included New York-based deep-value oriented hedge fund Owl Creek Asset Management, headed by Jeffrey Altman, with $2.9 billion in 13-F assets, adding 5.3 million shares to its 6.0 million share prior quarter position, and Prudential Corp. adding a new 2.9 million share position.
FST shares have been weak ever since it reported its Q4 on February 21st, in which it missed analyst revenue and earnings estimates. Its shares currently trade at 10 forward P/E and 1.1 P/B compared to averages of 20.8 and 5.2 for its peers in the U.S. oil & gas exploration & production group, while earnings are projected to rise from 87c in 2011 to $1.14 in 2012.
Other high conviction buys by Newgate in Q1 2012 in the basic materials and energy sectors include (see Table):
- Cliffs Natural Resources (CLF), that is a mining and natural resources company that produces iron ore pellets, lumps and fines iron ore, and metallurgical coal products, in which it added $6 million in Q1 to its $14 million prior quarter position;
- Petroleo Brasileiro SA (PBR), a Brazilian company engaged in the exploration, production, supply and distribution of oil and gas in Brazil and abroad, in which it added $6 million in Q1 to its $19 million prior quarter position;
- Tenaris SA (TS), a Luxembourg manufacturer of seamless and welded steel tubular products for energy and industrial applications, in which it added a new $4 million in Q1;
- offshore contract drilling services company Ensco Plc (ESV), in which it added a new $4 million position in Q1;
- Rowan Companies Inc. (RDC), a provider of international and domestic contract drilling services and related equipment, in which it added a new $4 million position in Q1; and
- Freeport McMoran Copper & Gold (FCX), engaged in the exploration and development of copper, gold, silver and molybdenum mines in Indonesia, North and South America, in which it added $3 million in Q1 to its $11 million prior quarter position.
The following are Newgate's high conviction bearish picks in the basic materials and energy sectors, based on its Q4 selling activity (see Table):
- Mechel Oao Ads (MTL), a Russian manufacturer of mining and steel products for construction, engineering, defense and other industries, in which it cut out completely in Q1 its $11 million prior quarter position;
- Schlumberger Ltd. (SLB), a provider of technology services, project management and information solutions to the petroleum industry worldwide, in which it cut $6 million in Q1 from its $15 million prior quarter position;
- Geneva, Switzerland-based Weatherford Intl Ltd (WFT), a leading provider of equipment and services used in the drilling, evaluation, completion, production and intervention of oil and natural gas wells to independent oil and natural gas producing companies worldwide, in which it cut out completely in Q1 its $4 million prior quarter position;
- Gerdau SA (GGB), a Brazilian producer and seller of common and special steel rods for the construction industry, as well as in the automotive and agricultural sectors, in which it cut $4 million in Q1 from its $15 million prior quarter position; and
- Teck Resources Ltd. (TCK), a Canadian miner of coal, copper, zinc, molybdenum, gold and lead, mainly in Canada, the U.S., Chile and Peru, in which it cut $3 million in Q1 from its $11 million prior quarter position.
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.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.