5 Unheralded Finance Picks of Billionaire Michael Price

Founded by value investor and billionaire Michael Price in 1998, MFP Investors is one of the hidden gems of the activist investing world. Though the fund is not as well-known as some of its larger peers, its strategy of using value investment principles along with a good measure of activist tactics thrown in has reaped rich dividends for its investors. Like most value-focused investment firms, MFP Investors makes very few changes to its portfolio on a quarterly basis and its latest 13F filing is a testament to that.

According to the filing, MFP Investors’ U.S. equity portfolio, which was worth $752.85 million at the end of June, had a quarterly turnover ratio of only 8.62% during the second quarter. The filing also revealed that going into the third quarter the fund’s exposure to the financial sector was greater than any other, stocks from which amassed 22% of the value of its portfolio at the end of June. Considering the fund’s history of keeping its portfolio unchanged for a long period of time and its bullishness on finance stocks, in this article we’ll take a look at five lesser-known stocks from the sector that it likes and analyze how those stocks have performed this year.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points in our backtests that covered the period between 1999 and 2012 (see the details here).

#5 Popular Inc (NASDAQ:BPOP)

– Shares Owned by MFP Investors (as of June 30): 310,000

– Value of Holding (as of June 30): $9.08 Million

Let’s start with Popular Inc (NASDAQ:BPOP), in which MFP Investors kept its stake unchanged during the second quarter. Shares of the bank holding company have done extremely well in the current quarter and are trading up by 34.6% year-to-date. For its most recent quarter, Popular Inc (NASDAQ:BPOP) reported EPS of $0.85 on net interest income of $360.55 million versus analysts’ expectations of EPS of $0.81 on net interest income of $370.98 million. The company currently pays a quarterly dividend of $0.15 per share, which translates into an annual dividend yield of 1.56%. During the second quarter, the number of hedge funds covered by us long Popular increased by five to 27 and the aggregate value of their holdings in it jumped by $27 million.

#4 TowneBank (NASDAQ:TOWN)

– Shares Owned by MFP Investors (as of June 30): 500,000

– Value of Holding (as of June 30): $10.82 Million

In terms of value, TowneBank (NASDAQ:TOWN) was MFP Investors’ 20th-largest equity holding at the end of the second quarter. TowneBank (NASDAQ:TOWN)’s stock has been on a consistent uptrend since mid-February and recently made its lifetime high at $23.97. Despite this swift rally, analysts who track the stock feel that it could see further upside going forward, as the company has no debt on its balance sheet and generates strong cash flow. The $0.13 quarterly dividend that TowneBank currently pays represents an annual dividend yield of 2.30%. On July 29, analysts at Keefe, Bruyette & Woods reiterated their ‘Market Perform’ rating on the stock while upping their price target on it to $24 from $22, which was very close to the high that the stock made recently. At the end of June, there were 11 hedge funds in our system that were long TowneBank, with the aggregate value of their holdings in it amounting to $53.36 million.

Head to the next page for three more low-key finance favorites of the billionaire investor.

#3 CIT Group Inc. (NYSE:CIT)

– Shares Owned by MFP Investors (as of June 30): 520,000

– Value of Holding (as of June 30): $16.59 Million

While MFP Investors didn’t make any change to its stake in CIT Group Inc. (NYSE:CIT) during the second quarter, Michael Blitzer‘s Kingstown Capital Management did, upping its stake in the company by 8% to 2.15 million shares. Unlike the stocks of the other two bank holding companies discussed previously, CIT Group Inc. (NYSE:CIT)’s stock hasn’t had a great 2016, losing 12.61% of its value this year. In June, the banking company sold its Canadian operations to Laurentian Bank of Canada for an undisclosed sum of money. CIT Group is currently engaged in selling its aircraft leasing business and according to recent reports, Avolon (NYSE:AVOL) might could end up acquiring it with a bid of between $3 billion and $4 billion.

Several analysts who track CIT Group feel that the intrinsic value of its stock is around $45 to $50 or more, which suggests upside potential of greater than 30%. According to them, if the company uses the proceeds of the sale of its aircraft leasing business for share buyback, the stock could see a major up move in the coming months. Ownership of CIT Group among the funds tracked by Insider Monkey came down by four to 30 during the second quarter and the aggregate value of their holdings in it also fell by $77 million to $1.03 billion.

#2 Kearny Financial (NASDAQ:KRNY)

– Shares Owned by MFP Investors (as of June 30): 1.42 Million

– Value of Holding (as of June 30): $17.93 Million

Kearny Financial (NASDAQ:KRNY)’s stock has been on a gradual rise since May 2015, when it converted from a mutual savings & loan company to a publicly-traded bank holding company, with shares having appreciated by over 26% since then. For its fiscal year 2016 fourth quarter, the company reported EPS of $0.05 on revenue of $27.44 million, whereas analysts had expected it to report EPS of $0.05 on revenue of $26.47 million. Earlier this month, analysts at Keefe, Bruyette & Woods reiterated their ‘Market Perform’ rating on the stock, while upping their price target on it $13.50 from $13.00, which is very close to where the stock is trading currently. MFP Investors was the only hedge fund that we track which didn’t make any change to its stake in Kearny Financial (NASDAQ:KRNY) during the second quarter, out of the 19 that were long the stock.

#1 Waterstone Financial, Inc. (NASDAQ:WSBF)

– Shares Owned by MFP Investors (as of June 30): 1.19 Million

– Value of Holding (as of June 30): $18.24 Million

Finally, as with its stakes in the other stocks already discussed, MFP Investors kept its stake in Waterstone Financial, Inc. (NASDAQ:WSBF) unchanged during the second quarter. Waterstone Financial, Inc. (NASDAQ:WSBF) has been one of the best performing bank holding companies in the last five years, returning 545% during that time. Despite such a stellar return, which includes appreciating by over 17% in 2016, the stock still sports a respectable annual dividend yield of almost 2%. Most analysts who cover the stock feel that it will continue moving upwards in the coming years, as even at these levels it represents a good buying opportunity for long-term value investors. Hedge funds as a group were also equally optimistic about the company going into the third quarter. The number of funds tracked by Insider Monkey that were long Waterstone Financial inched up by two to 13 and the aggregate value of their holdings in it rose by 13.6% to $73.62 million during the June quarter.

Disclosure: None