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More Superstar Investors

By Jim Fink on February 22, 2011

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Growth, safety, income and reliability: That’s the promise I make in every issue of Utility Forecaster.

 — Roger Conrad

The response of readers to my article last Thursday (Feb. 17th) entitled 13F Filings: Superstar Investors Buys and Sells has been highly favorable. Apparently, knowing what wealthy hedge-fund managers are up to is noteworthy. This doesn’t surprise me, since it’s rational to believe that successful hedgies – whose past investment success has been due to their ability to pick outperforming stocks – are likely to continue to make good stock picks in the future.

In last Thursday’s article, I highlighted the trading decisions four superstar investors made during the fourth quarter of 2010: Seth Klarman, Mohnish Pabrai, Bruce Berkowitz, and David Tepper. Personally, I found Seth Klarman’s purchases of two obscure biotech companies and Bruce Berkowitz’ purchase of a formerly bankrupt REIT to be the most interesting. These types of small-cap and special-situation stocks are rarely talked about in the mainline financial press and often present the best opportunities for outsized gains.

Anyway, risking overkill, I thought readers may want to see the recent stock picks of a few more superstar investors. Two I have discussed in the past: John Paulson and Julian Robertson. Paulson made billions betting against subprime mortgages and Robertson called the 2008 economic recession. The three newbies – Bill Ackman of Pershing Square, David Einhorn of Greenlight Capital, and Lee Ainslie of Maverick Capital — are relatively young 40-something activist investors. Ackman’s hedge fund has returned 22.5% annualized since inception in January 2004. He initiated an unsuccessful proxy fight with the management of Target (NYSE: TGT) and is currently stirring up trouble at JC Penney (NYSE: JCP). Einhorn’s hedge fund has returned 21.5% annualized since inception in May 1996 and he has recently engaged in a spirited debate with fellow superstar Bruce Berkowitz concerning the value of Florida real-estate play St. Joe Co. (NYSE: JOE). Ainslie’s hedge fund has returned 14% annualized since 1995 and he is one of Julian Robertson’s “Tiger Cubs,” having learned at the foot of the master himself.

Keep in mind that while this information is the latest publicly available, it reports stock holdings as of Dec. 31, 2010, so things may have changed over the past seven weeks (see my comment below about Bruce Berkowitz). With that caveat, let’s see what these guys have been up to . . .

1. Bill Ackman

Company

Action

% Change in Holding

Average Price Per Share

Comments

General Growth Properties (NYSE: GGP)

Buy

192.1%

$15.97

REIT focused on shopping malls. Chairman is Bruce Flatt who may be Canada’s Warren Buffett. Ackman is holding strong, unlike Bruce Berkowitz who sold his entire stake to Flatt’s Brookfield Asset Management (NYSE: BAM) in January for both cash and stock.

J.C. Penney (NYSE: JCP)

Buy

122.2%

$32.48

Owns 16.8% of the company and has partnered with Vornado Realty Trust (NYSE: VNO) to shake things up at the suburban department store. Recently joined JC Penney’s Board of Directors.

Fortune Brands (NYSE: FO)

Buy

123.3%

$57.75

Conglomerate has three completely unrelated divisions: (1) hard liquor; (2) home improvement and security; and (3) golf equipment.

Target (NYSE: TGT)

Sell

-47.7%

$56.14

Having lost the Target proxy contest, he sees more activist potential in JC Penney.

2.  John Paulson

Company

Action

% Change in Holding

Average Price Per Share

Comments

 

Anadarko Petroleum (NYSE: APC)

Buy

58.8%

$64.12

Company’s liability for its 25% stake in the offshore Macondo well — site of the BP oil spill – appears to be manageable.

Transocean (NYSE: RIG)

Buy

NEW

$67.18

Lessor of Deepwater Horizon oil rig may be indemnified against its liability for the BP oil spill.

Blackrock (NYSE: BLK)

Buy

NEW

$174.32

Largest asset manager in the world with $3.5 trillion in assets under management. Owns i-Shares ETF franchise.

Del Monte Foods (NYSE: DLM)

Buy

NEW

$16.29

One of my Best Thanksgiving Stocks.

3.  Julian Robertson

Company

Action

% Change in Holding

Average Price Per Share

Comments

LyondellBasell Industries NV (NYSE: LYB)

Buy

NEW

$29.39

Dutch company with Houston operational headquarters focuses on commodity petrochemicals and oil refining. Emerged from bankruptcy last year, so its balance sheet is much improved. David Einhorn also owns it (see below).

Valeant Pharmaceutical (NYSE: VRX)

Buy

NEW

$27.13

Specialty drug manufacturer merged with Canada’s Biovail last September. Focuses on proprietary pharmaceuticals that treat skin and brain disorders, as well as generic drugs and consumer healthcare products.

PDC Energy (NasdaqGS: PETD)

Buy

NEW

$35.29

Independent oil & gas E&P company (82% natural gas) focused on the Rocky Mountain region and the Marcellus Shale in Appalachia. Stock rose 131% in 2010.

Qualcomm (NasdaqGS: QCOM)

Buy

NEW

$47.04

Owns 10,000 intellectual property patents on CDMA wireless network standard. Collects between a 3% and 5% royalty on each CDMA cellphone sold. Also manufactures Snapdragon processor chips for smartphones.

4.  David Einhorn

Company

Action

% Change in Holding

Average Price Per Share

Comments

Sprint Nextel (NYSE: S)

Buy

NEW

$4.22

Third-largest wireless phone network (after Verizon and AT&T). Heavy debt load.

BP (NYSE: BP)

Buy

NEW

$42.11

With estimated liability from its Gulf of Mexico oil spill fully reserved, company announced it would resume paying a dividend starting on March 28th. Size of quarterly dividend is $0.42 per ADR, which is half its pre-spill payout.

LyondellBasell Industries NV (NYSE: LYB)

Buy

NEW

$29.39

Also owned by Julian Robertson (see above).

CIT Group (NYSE: CIT)

Sell

-30.7%

$42.29

Commercial lender headed by former Merrill Lynch CEO John Thain emerged from bankruptcy in Dec. 2009. Company missed analyst earnings estimates on Feb. 15th and the stock fell more than 6%.

5.  Lee Ainslie

Company

Action

% Change in Holding

Average Price Per Share

Comments

JP Morgan Chase (NYSE: JPM)

Buy

NEW

$39.41

Along with Wells Fargo, one of the healthiest large banks in the U.S. Led by widely-respected CEO Jamie Dimon, the bank purchased Bear Stearns and Washington Mutual at fire-sale prices during the financial crisis.

Qualcomm (NasdaqGS: QCOM)

Buy

512.5%

$47.04

Also owned by Julian Robertson (see above).

Urban Outfitters (NasdaqGS: URBN)

Buy

NEW

$34.31

Highly profitable apparel retailer with a “cool” brand and no debt. Owns Anthropologie women’s clothing chain.  

Hewlett Packard (NYSE: HPQ)

Sell

-100%

$42.41

Manufacturer of computers and printers is still under a cloud following the firing of former CEO Mark Hurd.

Invest in Utility Stocks with the Help of Utility Forecaster

Don’t have the time or the passion needed to monitor speculative stocks like those traded by the hedge-fund guys? Utility stocks that provide “essential services” are near-monopolies that state regulators protect from competition. In return, many of these utilities (e.g., electric, natural gas, water, and telecommunications) are guaranteed a healthy and stable return on investment. Utility stocks are an easy and safe way to gain equity exposure without all the hassle and risk. 

Roger Conrad is Investing Daily’s in-house superstar investor. He is also the advisor of the market-beating Utility Forecaster income service, which has carefully selected more than 35 dividend-paying stocks, as well as 14 fixed-income preferred stocks and bonds, that will help you compound wealth safely.  To find out the specific names of his favorite income investments right now, consider giving Utility Forecaster a try today!

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