By Matt Doiron
Billionaire Bruce Kovner founded Caxton Associates in 1983 and returned an average of 21% per year from inception through 2011. Kovner himself retired in 2011, and the fund is now managed by Andrew Law. In 2008, Law was the head of investing at the fund and returned 13%. Caxton Associates doesn't recommend or endorse any of the stocks or analysis in this article, and we have no relationship with the fund, but based on SEC filings, these are our opinions of what they are thinking. Read on to see the fund's largest reported stock positions at the end of the second quarter, according to its 13F, or compare them to previous filings.
The largest stock position in Caxton's portfolio at the end of June was United Rentals (URI). United Rentals rents construction and industrial equipment, and so represents a bullish bet by Caxton on the U.S. economy. The stock's beta is 3.1. Thanks to its acquisition of another leading equipment rentals company, and the synergies that sell-side analysts expect it to receive as a result, the stock trades at a forward price-to-earnings multiple of only 8 and a five-year PEG of 0.9. These figures put it in the same range as equipment seller Caterpillar, though United Rentals is North America-focused.
American International Group (AIG) was another large position, with Caxton reporting ownership of 2.2 million shares of the bailed-out insurer. AIG's troubles may not be over, but it is attracting attention as a value stock due to its forward earnings multiple of 11 and five-year PEG of 0.4. Over the last year, the stock has risen about 56%. AIG is also trading at 0.6 times the book value of its equity, and while its balance sheet may well include some bad assets, it has quite a margin of safety built into the stock price. We would hold off on it for now, but we're intrigued by Caxton's activity.
Caxton owned 1.8 million shares of Freeport McMoRan Copper & Gold (FCX) at the end of June. Freeport McMoRan pays a good dividend yield of 3.5%, though the stock has fallen recently based on poor revenue and earnings numbers in recent quarters. Like United Rentals, and as might be expected from a commodity-focused company, the stock is tied to the broader markets with a beta of 2.3. On a value basis, however, the stock does not look bad, with a trailing P/E of 11 and a forward P/E of 7. Caxton seems to be getting behind global growth with this investment, and it may take some time to see an increase in the stock price given concerns about the Chinese economy in particular.
Caxton also weighed in on one of the most passionate investor battles in the healthcare sector, with a 1.9 million share position in pharmaceutical company Vivus (VVUS). Vivus' recently approved weight loss drug, Qsymia, could be a golden opportunity for the company, but safety concerns may result in it losing out to fellow drug company Arena Pharmaceuticals (read our coverage of Arena and Vivus). So far this year, Vivus is up 130% on the news of Qsymia's approval, but we think it's a risky bet for investors, given the potential for safety-conscious (and lawsuit-conscious) doctors to send their patients elsewhere.
Sotheby's (BID) was another large position in the fund's portfolio, with Caxton reporting a stake of 1.3 million shares. The $2.3 billion market cap auctioneer of fineries, like other companies we have mentioned, is dependent on global growth (in this case, to produce the wealth that drives up auction prices) and its beta is 2.8. Similarly to United Rentals or Freeport McMoRan, if an investor can get over macro concerns, there could be a value play here. Based on sell-side estimates, the company trades at 14 times forward earnings and a five-year PEG ratio of 1.
Looking at Caxton's top stock positions, we would say the fund is behaving pretty bullishly, with multiple investments in companies with significant exposure to global growth numbers. Vivus is likely a company-specific investment in the potential golden goose of a weight loss drug, another big risk. Of the fund's themes, we would suggest that a diversified investor have a stock similar to United Rentals, Freeport McMoRan, or Sotheby's in their portfolio to capitalize on growth scenarios, but probably not be as heavily dependent on that outcome.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.