York Capital's Top Holdings: 2 To Buy, 2 To Avoid

by: Rash Menaria

Founded in September 1991 by James G. Dinan, York Capital Management is a hedge fund management firm. The firm manages over $10 billion in the York series of hedge funds.

Investment Strategy: York Capital Management is a value-oriented, event-driven investor that invests in U.S. stocks across all market caps. The firm utilizes four strategies: risk arbitrage, distressed securities, special situations and long-term event driven. York Capital Management employs a bottom-up approach, emphasizing fundamental analysis in selection of investment opportunities.

The firm's investment ideas are generated from significant corporate announcements and information found in the financial press. York Capital Management specializes in merger and acquisition transactions, distressed and restructuring opportunities and special situations equity investing in a variety of events, including corporate spin-offs and breakups, litigation opportunities, shareholder agitation and proxy contests, balance sheet arbitrage and consolidation opportunities.

The following is a list of its top holdings, according to its latest 13F filing with SEC.



Shares Held

% of Portfolio

Dollar Thrifty Automotive Group




Centerpoint Energy Inc.




Beam Inc.




Hertz Global Holding




Williams Companies Inc.




Sara Lee Corp.




Abovenet Inc.




I like Beam Inc. and Sara Lee among above stocks, and believe they can outperform the broader markets going forward. However, two stocks which I would like to avoid from the above list are Centerpoint Energy and Williams Companies.

Beam is a leading pure play spirits company and is the 4th largest premium spirits company worldwide. The business is geographically well-diversified, spread across US, Australia, Europe and emerging markets, catering to around 150 countries. The key brands in Beam’s bouquet are Jim Beam bourbon, Maker's Mark bourbon, Sauza tequila, Canadian Club whisky and Courvoisier cognac. The company owns 10 of the top 100 premium spirits brands and generates approximately $2.7 billion in annual sales.

The company is benefitting from strong global demand especially from emerging markets -- most notably India, where Beam has a bottling license, and Brazil, where one of Beam’s brands, Teachers, has a strong market share.

Beam’s new management, with more operating expertise, is committed to introducing new product line while introducing process efficiencies and increasing marketing spend. The company has spent an incremental $50M in brand investment over the past two years, resulting in incremental sales gains of about 5%, better than industry average. Beam enjoys strong capital structure and is always enthusiastic about bringing innovations in spirit business. Skinny Girl is one success story, and recent innovations include Devil’s Cut bourbon, Makers 46, Red Stag Spiced and Honey tea. It targets 25% annual growth through new products.

Beam’s management is also focusing on improving organizational effectiveness with back-office integration, optimizing processes and systems, lean manufacturing and improvement in material procurement. These efforts alone can bring 1-2% cost improvements. Its sales-driven model might also help in enhancing the company’s value and growth in a consolidating spirits industry.

In addition to organic growth and improving process efficiencies, Beam is also not shy of acquisitions. Its recent buy – Cooley Distillery – offers it an opportunity to tap the fast-growing Irish whiskey category.

I believe that the company is just beginning to benefit from the multi-year step-up in brand equity building. I also expect it to pursue a more premium position over time through innovations and potential M&A. Beam is in the right position to capitalize on the increased consumer interest in the bourbon category and poised for international growth. Management looks dedicated to creating famous brands and building winning markets, which will fuel growth in the future.

Sara Lee Corp. is another good long candidate from the above list. Sara Lee is a diversified global manufacturer and marketer of consumer products, including: Retail, Bakery and Foodservice in North America, and Beverages, Bakery and Household and Body Care in International. Although there are some-near term cost headwinds, I am bullish on the stock, primarily due to proposed breakup this year, which will create value for the stockholders.

Two stocks in the above list which I would like to avoid are Centerpoint Energy and Williams Companies. CenterPoint Energy, Inc. is a public utility holding company. It operates in seven segments: Electric Transmission & Distribution, Natural Gas Distribution, Competitive Natural Gas Sales and Services, Interstate Pipelines, Field Services and Other Operations. Centerpoint energy is currently trading at 16.36x 2012 EPS and I believe its fundamental gas infrastructure growth story is completely priced in at these levels. With pressure on core earnings and no clarity on the use of $1.7 billion in cash from a Texas remand case at least till mid-2012, I don’t see much upside to the stock.

I also don’t see much upside in Williams Companies. After recent spin-off of WPX Energy (NYSE:WPX), I don’t see any more catalysts for the stock in the near term. The company is trading at ~20x forward PE after the E&P split, and I believe it is fully valued at these levels.

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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