Established in 2008, Senator Investment Group was faced with extreme market conditions in its infancy, but that didn’t stop founders Douglas Silverman and Alexander Klabin from accumulating almost $3bn in assets under management. The two investors worked at York Capital Management prior to opening their fund, honing their skills in value, event-driven, and special situation/distressed investing. We recently took a peek at their latest 13F filed with the SEC to see where they are putting their investors’ money to work, evaluating their largest positions first and foremost.
The duo has built their largest holding in Macquarie Infrastructure Company (NYSE:MIC). With a relatively small capitalization of $2.2bn, MIC primarily operates infrastructure businesses that provide basic services such as building cooling and gas utility services. Investors who got in a year prior and held were able to ride a 72% wave in their favor, but a high price relative to earnings gives this stock an unsavory trailing P/E ratio. Stockholders shrugged off significant earnings misses for most of 2012, instead choosing to hold for a very attractive 5.7% dividend yield. Although we see 2013 growth numbers being more realistic, we wouldn’t want to buy near the top and would leave this play for other sharks.
Senator’s second-largest holding is drug distributor and pharmaceutical service provider AmerisourceBergen Corp (NYSE:ABC). They sit at the top of this industry alongside Cardinal Health and McKesson. ABC’s price is valued at thirteen times its future earnings, but their high price-to-book suggests that the run they enjoyed in 2012 might need to see a pull-back. Sell-side analysts at firms like Goldman Sachs have the same convictions, dropping their previous buy ratings to holds. Similar to MIC, an investor looking to get in now may have missed most of the alpha, so we recommend turning an eye to value elsewhere (which hedge fund manager has almost $270mm invested in ABC? Find out here).
Continuing along the lines of pharmaceutical plays, Senator’s investing team has piled 4.7% of their portfolio into Watson Pharmaceuticals (NYSE:WPI). As of the end of 2011, Watson marketed roughly 190 pharmaceutical product families in the United States, 160 of those being generic and 30 being brand name. In November of last year, Watson completed their acquisition of Actavis, creating the third largest global generics company with significant international presence. Investors responded positively, pushing the stock to a near-50% gain in 2012. Quarterly revenue and earnings growth are healthy, and we recognize continued value in this play as the conjoined company makes use of their new economies of scale.
Click to the next page to see the rest of Senator’s top picks.
Apple Inc (NASDAQ:AAPL) is perched amongst Senators top holdings as well; the fund recently shed 15,000 of their 200,000 shares going into Q3 2012. Investors are beginning to wonder if Apple’s luster is losing its shine, as they recently cut production in supplies for some of their products. Further competition from more technologically-advanced smartphones such as the Samsung Galaxy Note II and recently announced Galaxy S4 has put the heat on in Apple’s cellular division. While holiday sales may boost Apple’s bottomline for their upcoming earnings announcement, be careful for the near-term falling knife if they miss.
Charter Communications (NASDAQ:CHTR) rounds out the last of Senator’s top picks. The broadband and cable communication services provider endured a rough 2012, missing all four earnings estimates, sometimes by more than double. Investors took these missteps in stride, still carrying the stock to a respectable positive gain. Analysts are looking past CHTR’s earnings fumbles and still advocating buys, with a one year mean price target set near $83.30, around 5.7% from current levels. We would rather hold on for positive earnings, hoping that some of their recent agreements (i.e. with Disney) will bring them into the black.
Disclosure: I do not own shares of any stocks mentioned in this article.
