Abrams Capital Management Loves These 5 Stocks

Abrams Capital Management, led by David Abrams, revealed only 14 long positions in its latest 13F filing with the U.S. Securities and Exchange Commission, for the reporting period of September 30. The value of the fund’s equity portfolio stood at $1.40 billion at the end of September, down from $1.47 billion a quarter earlier. During the third quarter, the Boston-based hedge fund, which was founded by Abrams in 1999, initiated four new positions, while it unloaded two of its former holdings. In this article, we will be analyzing Abrams Capital’s top stocks heading into the fourth quarter.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

#5 Barnes & Noble Inc. (NYSE:BKS)

– Shares held (as of September 30): 6.92 Million

– Total Value (as of September 30): $83.79 Million

– Percent of Portfolio (as of September 30): 6.00%

Abrams Capital added 1.80 million shares to its holding of Barnes & Noble Inc. (NYSE:BKS) during the third quarter. Barnes & Noble Inc. (NYSE:BKS) is a $940.3 million retailer of physical and digital books and media, and educational products. In August, Barnes & Noble completed the separation of its Retail and College businesses, with Barnes & Noble Education Inc (NYSE:BNED) becoming an independent public company and parent of Barnes & Noble College. Under the plan, stockholders who held Barnes & Noble’s common stock on July 27 received a distribution of 0.632 Barnes & Noble Education common shares for every Barnes & Noble share. Barnes & Noble Inc. (NYSE:BKS)’s stock has declined by 46.9% year-to-date. Jim Simons’ Renaissance Technologies holds 1.60 million shares of Barnes & Noble Inc. (NYSE:BKS) as of the end of September.

#4 Barnes & Noble Education Inc (NYSE:BNED)

– Shares held (as of September 30): 7.15 Million

– Total Value (as of September 30): $90.82 Million

– Percent of Portfolio (as of September 30): 6.50%

Due to the aforementioned spinoff, Abrams Capital held a new position in Barnes & Noble Education Inc (NYSE:BNED) at the end of the third quarter. The company provides bookstore operation services, operating 724 campus stores serving colleges and universities throughout the United States. After its spinoff from Barnes & Noble in August, Barnes & Noble Education Inc (NYSE:BNED) became an independent public company which is now focusing on future growth opportunities to enhance its services. The company is being led by Michael Huseby, who is a former CEO of Barnes & Noble. Shares of Barnes & Noble Education Inc (NYSE:BNED) have performed impressively over the last 30 days, increasing by 9.27%. In its latest 13F, Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, reported holding 170,540 shares of the company as of the end of September.

On the next page, we will talk about Abrams Capital’s top three stock picks, including Microsoft Corporation (NASDAQ:MSFT).