By Matt Doiron
Blue Ridge Capital, which is managed by Julian Robertson's former second-in-command at Tiger Management John Griffin, disclosed through a 13G filing that the fund owns 5.4 million shares of Colfax (CFX), which provides pumps and valves for handling gas and fluids. All of these shares had been purchased since March 31 and Blue Ridge now owns 5.7% of the shares outstanding. Year to date the share price is down about 4%, though it has fallen about 23% since the beginning of April. As a result, investors may be able to buy the stock at a cheaper price than Griffin did.
CFX is not the only company Blue Ridge has been buying into recently. In June, the fund increased its stake in Martin Marietta Materials (MLM), a company that mines and processes aggregates such as granite, to 2.5 million shares, up from 1.6 million at the end of March. Blue Ridge had initiated its position in MLM in the first quarter of 2012 (see other stock picks from Blue Ridge). While MLM is about even with the S&P over the last three months, it has rallied 20% since Blue Ridge disclosed that it had increased its position a month ago.
Griffin's position should make Blue Ridge the largest hedge fund shareholder of CFX. Brahman Capital, managed by Peter Adam Hochfelder, owned 1.5 million shares; the fund had taken a small position in the company at the end of 2011 and then scaled it up by March (look at the rest of Brahman Capital's portfolio). Columbus Circle Investors initiated a position of about 900,000 shares in the first quarter, but this was only a small share of the fund's holdings (learn more about Columbus Circle's favorite stocks).
Colfax grew its revenue considerably in the first quarter of 2012 compared to the first quarter of 2011 both in the U.S. and in foreign markets (about 20% of its Q1 2012 revenue came from the U.S.), but its net income fell from a gain of $6.6 million to a loss of $100 million. The loss was primarily driven by increases in corporate-related expenses, as the gas and fluid handling segment had a small decline in operating income and the fabrication technology division, which earned an operating profit, had not been a category in Colfax's accounting the previous year. This was because Colfax recently completed the acquisition of Charter and thus became what the company describes as "a multi-platform enterprise." This may be a concern for investors who think that companies generally destroy shareholder value when they acquire other companies because of a resulting lack of focus on the core business.
Colfax and its peers tend to have similar valuation multiples. Flowserve (FLS) is a peer company of CFX's, though it is larger at a $6 billion market cap compared to CFX's $2.5 billion. Flowserve has positive trailing earnings- unlike Colfax- and a resulting trailing price-to-earnings ratio above 14. On a forward basis, Colfax's P/E is 12 while Flowserve's is 11, though both have PEG ratios between 0.6 and 0.7. Another peer is Robbins & Myers (RBN), whose trailing and forward P/Es are just under 13 and 11 respectively. CFX is slightly outperforming RBN so far this year; while it tracked FLS very closely for the first few months of 2012, FLS recently rose and now stands at up about 10% on the year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.