Abrams Capital: Drew Pluhar, Travis Rhodes and Billionaire David Abrams’ Picks

Billionaire David Abrams founded in 1999 in Boston. The fund follows a fundamental, value-oriented approach and its investments are made with a focus on the long-term horizon. Abrams holds a diversified portfolio of assets, including domestic and foreign equity securities, debt, distressed securities, and private and illiquid investments. Before founding Abrams Capital, David Abrams spent a decade at the renowned value investor Seth Klarman’s Baupost Group. Mr. Klarman’s personal foundation invested in Abrams Capital, which over the years managed to earn its investors billions of dollars and even made Abrams himself a billionaire.

Since its launch in 1999, Abrams Capital registered average annualized returns of around 15%. This is impressive especially since Abrams Capital is basically a one-man shop, which employs a small staff, including investment analysts Drew Pluhar and Travis Rhodes, COO Michael Josephson, CFO Frederic Leif, and Head of Trade Michael Piper. In addition, Mr. Abrams personally approves all trades.

Abrams Capital is also unlevered, which means that it does not invest with borrowed money and usually holds a significant amount of cash, probably taking after his mentor Seth Klarman, who prefers to hold cash rather than invest in securities with low safety margins. The fund’s latest 13F filing shows its conservative approach as it is relatively concentrated  and most positions were unchanged during the second quarter.

Overall, David Abrams’ fund equity portfolio is worth $2.52 billion as of the end of June. The 13F filings contains 18 positions, including three new holdings: Altaba Inc (NASDAQ:AABA), Cars.com Inc (NYSE:CARS), which  and Suburban Propane Partners LP (NYSE:SPH). During the second quarter, Abrams Capital also increased its stake in two companies, trimmed four holdings and closed its position in Microsoft Corporation (NASDAQ:MSFT), having unloaded 4.98 million shares between April and June.

Following funds like Abrams Capital is a great way to identify profitable investment opportunities, since they employ resources and skills that are not always available to smaller investors. Even though there are some lags behind the time that a fund makes an investment and the time it reveals it, due to their long-term focus, it can be still useful to try and replicate them. However, trying to replicate the portfolio of individual funds can be risky, especially in the last couple of years when a lot of big hedge funds made bad bets, which resulted in huge losses.

One way to reduce the risk, is to select several funds and follow them into the stocks that they are collectively most bullish on. This is where our research comes in handy. At Insider Monkey, we follow over 600 hedge funds and analyze their quarterly 13F filings in order to determine their collective sentiment towards thousands of stocks. However, we focus on their small-cap picks as part of our investment strategy, which returned over 45% since February 2016. We share the stocks that are part of our strategy with the subscribers to our quarterly and monthly newsletters, that you can read more about here.

With this in mind, let’s take a look at Adams Capital’s top picks from its latest 13F filing, as well as some other stocks that the fund was bullish on heading into the third quarter.

1. The Western Union Company (NYSE:WU)

In The Western Union Company (NYSE:WU), David Abrams’ fund held 21.61 million shares worth $411.65 million at the end of June, unchanged over the quarter. The stock of the money movement services provider has lost over 10% since the beginning of the year and currently has a dividend yield of 3.60%. Earlier this month, The Western Union Company (NYSE:WU) posted earnings of $0.50 and revenue of $1.38 billion for the second quarter, beating the consensus estimates by $0.08 and $10 million, respectively. Other shareholders of The Western Union Company (NYSE:WU) include John Overdeck and David Siegel’s Two Sigma Advisors and Paul Marshall and Ian Wace’s Marshall Wace, which own 3.24 million shares and 2.26 million, respectively.

2. Franklin Resources, Inc. (NYSE:BEN)

The fund also reported ownership of 7.95 million shares of Franklin Resources, Inc. (NYSE:BEN), valued at $355.85 million in its latest 13F filing. Richard Pzena’s Pzena Investment Management is also bullish on the financial holding company, having inched up its stake by 3% to 10.35 million shares during the second quarter. Franklin Resources, Inc. (NYSE:BEN) has assets under management of around $745 billion and its stock has appreciated by almost 20% over the last 12 months. In addition, the company has been raising its dividend consistently over the last couple of years and in 2017, it has been paying a quarterly dividend of $0.20 per share, which gives its stock a yield of 1.85%.

3. Time Warner Inc (NYSE:TWX)

At the end of June, Abrams Capital held 3.05 million shares of Time Warner Inc (NYSE:TWX), worth $306.25 million. The fund initiated a stake in Time Warner during the fourth quarter of 2016, when the company announced that it had entered into a merger agreement with AT&T. Both companies are preparing to close the deal valued at $85 billion, which is currently in the final stages of the Department of Justice’s review. Aside from Abrams Capital, Thomas Steyer’s Farallon Capital holds 6.98 million shares of Time Warner Inc (NYSE:TWX), up by 24% over the quarter, while Nick Niell’s Arrowgrass Capital Partners almost doubled its stake to 4.50 million shares during the second quarter.

4. Altaba Inc (NASDAQ:AABA)

In Altaba Inc (NASDAQ:AABA), Abrams Capital disclosed a new stake containing 3.91 million shares valued at $213.28 million. The fund added Altaba Inc (NASDAQ:AABA) to its equity portfolio as the company, formerly known as Yahoo, started trading following the acquisition of Yahoo’s core business by Verizon Communications Inc. (NYSE:VZ). Altaba Inc (NASDAQ:AABA)’s main assets include a 15.5% stake in Alibaba Group Holding Ltd. (NYSE:BABA) and a 35.5% holding in Yahoo Japan. Since it was renamed, Altaba Inc (NASDAQ:AABA) started a capital return plan and authorized a $5.0 billion buyback in July, after having announced a $3.4 buyback in June. One of the largest shareholders of Altaba Inc (NASDAQ:AABA) is Canyon Capital Advisors, led by Joshua Friedman and Mitchell Julis, which owns 50.53 million shares as of the end of June.

5. AMERCO (NASDAQ:UHAL)

Then there is AMERCO (NASDAQ:UHAL), in which Abrams Capital boosted its position by 46% to 394,610 shares worth $144.45 million during the second quarter. Other investors long AMERCO (NASDAQ:UHAL) include David Einhorn’s Greenlight Capital, Cliff Asness’ AQR Capital Management, and Amit Nitin Doshi’s Harbor Spring Capital. AMERCO (NASDAQ:UHAL) is known as a DIY moving and storage operator and owner of the U-Haul brand. Due to its size, AMERCO (NASDAQ:UHAL) has a big competitive advantage in the US and is currently the largest DIY moving and storage business with 285,000 vehicles and a 47.9 million square feet of rentable storage, which makes it a good-long term investment.

6. Cars.com Inc (NYSE:CARS)

Cars.com Inc (NYSE:CARS) represents another new position in the fund’s equity portfolio, as the fund added 2.50 million shares valued at $66.57 million between April and June. Cars.com Inc (NYSE:CARS) is the owner of a digital automotive marketplace, Cars.com. The company went public at the beginning of June and has inched up by over 3% since the IPO. The company posted a revenue of $156.62 million for the second quarter, flat over the year and it expects revenue growth to remain flat throughout 2017, but to advance by 5% to 10% next year. Another fund that added Cars.com Inc (NYSE:CARS) to its equity portfolio is Edward A. Mule’s Silver Point Capital, which reported ownership of 2.34 million shares in its latest 13F filing.

7. Global Eagle Entertainment Inc (NASDAQ:ENT)

Global Eagle Entertainment Inc (NASDAQ:ENT) saw David Abrams’ fund increase its position by 18% over the quarter to 7.0 million shares worth $24.92 million at the end of June. Abrams Capital has held shares of Global Eagle Entertainment Inc (NASDAQ:ENT) since the fourth quarter of 2013 and the stock has lost over 70% since then, as the provider of aircraft connectivity systems missed the bottom line estimates in most quarters. Earlier this year, Global Eagle Entertainment Inc (NASDAQ:ENT) said that it found some weaknesses in its internal controls, which led to the delay of its 10-K filing. In addition, in February the company’s CEO and CFO resigned and the company said its full-year earnings would likely come at the low-end of its previous range of $530 million to $538 million. One of the top shareholders of Global Eagle Entertainment Inc (NASDAQ:ENT) is Paul Reeder and Edward Shapiro’s PAR Capital Management, which owns 28.98 million shares as of the end of June.

8. Suburban Propane Partners LP (NYSE:SPH)

In Suburban Propane Partners LP (NYSE:SPH), Abrams Capital disclosed a new $9.25 million position that contained almost 389,000 shares at the end of the second quarter. Suburban Propane Partners LP (NYSE:SPH)’s stock has plunged by 22% so far this year, but it sports a dividend yield of 15%. For the last couple of years, the company posted worse than expected results, although its last financial report showed a net loss of $0.48 per share, versus a consensus estimate of a loss of $0.59. However, its revenue of $222.90 million was $1.29 million lower than expected. Despite the weak financial results, Suburban Propane Partners LP (NYSE:SPH) has increased its dividend from $0.87 in 2013 to $0.89 in 2017, which worried some investors whether the dividend will be sustainable, especially given the relatively warm winters that the US has registered in the last couple of years. Another investor long Suburban Propane Partners LP (NYSE:SPH) is James Dondero’s Highland Capital, although its stake is much smaller and contains just 30,500 shares.

Disclosure: none