A Hedge Fund’s Picks for a Stronger Economy

Richard S. Meisenberg is the manager and founder of ACK Asset Management, a hedge fund created in 2005 that specializes in small cap and mid cap equities. The fund details on its website that it capitalizes on mid-cap and small-cap companies because they are both the largest segment of the market and the least efficiently priced. A broad economic outlook, a long/short strategy, and an eye for catalysts are the mainstays of Meisenberg’s strategy. Before founding ACK Asset Management, Meisenberg was an analyst for small- and mid-cap stocks at Oppenheimer & Co. and Smith Barney, as well as a founding partner of Palisade Capital Management. ACK Asset Management was co-founded with John H. Reilly III, who is a managing partner.

The following reviews the fund’s equity holdings as revealed in its 13F regulatory filing (you can view the entire portfolio here). Each of these companies occupies at least 5 percent of ACK Asset Management’s 13F portfolio, and they all have market caps below $2 billion.

Emcor

Emcor Group Inc (NYSE:EME) is an construction and facilities services firm specializing in energy infrastructure that operates about 70 subsidiaries and joint venture entities in the United States and the United Kingdom. The company’s shares are up 12 percent year-to-date and are trading at 12.5 times forward consensus earnings. One of the company’s subsidiaries, Harry Pepper & Associates, was recently awarded a 5-year contract from NASA to maintain and provide engineering services for one of its sites in Mississippi. The company’s return on equity of 10.4 percent is below that of the BMI industrials average of 14 percent, and the company operates at a narrow profit margin of 2.3 percent.

Dycom

Dycom Industries Inc. (NYSE:DY) missed on both its earnings and revenues estimates for the second quarter and is seeing steadily shrinking margins. The company’s earnings per share of $0.39 was 2 cents below S&P estimates. Shares are valued at 11.2 times forward earnings, which is below the BMI industrials average of 14 times forward earnings. Dycom provides a number of contracting services and, like Encor, executes construction and maintenance projects, though it focuses on telecommunications-oriented contracts. Unlike Encor, Dycom Industries, Inc. has a 32 percent long-term debt to capital ratio, which has steadily grown since 2008.

Capital Senior Living

Up 71 percent year-to-date, Capital Senior Living Corporation (NYSE:CSU) operates 84 senior living facilities with a total approximate capacity of 11,800 residents. The company has a growth-centered valuation, with shares trading at 38 times forward earnings. Additionally, the price/earnings to growth (PEG) of the company is 4 (closer to one is better), indicating that the company’s P/E is about 4 times the company’s estimated 5-year earnings growth. Generally, earnings growth should match P/E, so even as a growth stock, its shares looks expensive. That said, JMP Securities has a price target of $18 for the stock.

Rogers Corporation

Rogers Corporation (NYSE:ROG) provides a number of materials for communications, transit, and defense infrastructure and maintains a clean technologies division. The company recently displayed its special circuit material, which increases overall performance of high-speed digital circuits, known as Theta ®. The company’s shares have a forward P/E of 15.8, and the company has a tight cost structure, with a profit margin of 3.8 percent.

Meisenberg’s portfolio contains a number of industrial businesses that operate on thin margins and are relatively sensitive to market fluctuations (these top four holdings, about 24 percent of the portfolio, have a beta of 1.5 or higher). Nevertheless, this is an interesting portfolio for those looking to play a strengthening economy.