Billionaire Tom Sandell's Top Portfolio Positions

Includes: AIG, CPWR, CYMI, HTZ, O
by: Insider Monkey

By Eric Winter

With an estimated net worth of $1.1bn, hedge fund manager Tom Sandell is the 10th-richest person in Sweden. The founder of Sandell Asset Management Corp is a current resident of New York City, the same city where he received his MBA and started his career at Bear Stearns. Sandell Asset Management recently released its 13F for Q4 2012, outlining the fund's positions. We have searched hundreds of 13F filings to find the most popular small-cap stock picks amongst managers and have uncovered a strategy that outperformed the S&P 500 index by 18 percentage points per year (see the strategy's stock picks and their returns since September). Let's take a look at Sandell's biggest holdings going into 2013.

Compuware Corp. (NASDAQ:CPWR) stands as both Sandell's top pick and his largest new holding. The software solution provider is small in size, possessing a $2.5bn market capitalization. In December, Elliott Associates offered to purchase CPWR for $11/share, which the company rejected. Compuware recently set off talks with private equity giants Blackstone and TPG about other possible buyout options, possibly providing respectable short-term returns for Sandell if an offer over its current trading level of $11.80 materializes. Jeffrey Smith of Starboard Value has built a 7mm share position in the stock.

Car rental brand Hertz Global Holdings, Inc. (NYSE:HTZ) is Sandell's second-largest holding, comprising roughly 10% of his portfolio. The fund bumped its share in the stock up slightly from Q3 2012 to Q4 2012 but saw a 100% increase in size from the second quarter to the third. Late last year, the company completed its acquisition of Dollar Thrifty Automotive Group, Inc. (which Sandell owned $46mm worth), and Wall Street is expecting the integration to lead to considerable rise in earnings and free cash flow. The bulls have staked their claim in Hertz, hoping to see 24% of upside to meet analysts' price targets a year out. Glenn Russell Dubin of Highbridge Capital Management has a staggering $230mm position in HTZ.

American Realty Capital Trust is also listed as a top holding of Sandell's, although the company has since been acquired by Realty Income Corporation (NYSE:O) and no longer trades under the ARCT ticker. The deal was announced last September and saw O buying all of ARCT's outstanding shares and assuming control of the REIT's 486-property portfolio. ARCT shareholders approved the merger last month and the deal has since closed, despite opposition from Institutional Shareholder Services (which later flip-flopped and encouraged the merger). John Arnold of Centaurus Advisors was reported to be holding a $2.6mm share in his most recent 13F.

Cymer, Inc. (NASDAQ:CYMI) is a supplier of light sources necessary to make semiconductors, a process known as photolithography. Similar to ARCT, Cymer penned a deal to be acquired by ASML Holding N.V. last October, and the deal received shareholder approval at the start of this month. The $2.6bn transaction is expected to close in the first half of 2013 pending a number of other approvals. Those investors who got in a year ago today would be sitting on a 100% appreciation in price per share right now. Dallas-based Carlson Capital was one of many hedge funds that initiated a position in Q4 2012.

American International Group (NYSE:AIG) has seen renewed interest from many investors across the Street, so much so that it has superseded Apple as the most popular stock amongst hedge funds. Interest from money managers rose by 80% in the third quarter of 2012, bringing the number of hedge funds who hold AIG up to 142 out of the 400+ we track. In AIG's most recent Q4 earnings announcement, the insurer was able to post a $290mm operating profit despite a loss of $945mm in its property & casualty division due to Hurricane Sandy. AIG tripled the return of the S&P 500 going back a year. Fellow billionaire Bruce Kovner has a $358mm stake in AIG (see his portfolio here).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: This article is written by Insider Monkey's writer, Eric Winter, and edited by Meena Krishnamsetty. They don't have any business relationships with any of the companies mentioned in this article and they didn't receive compensation (other than from Insider Monkey and Seeking Alpha) to write this article.