Last month, Caxton Associates disclosed its portfolio of holdings in the 13F filing with the SEC. At the end of last year, this $6.7-billion investment firm allocated 14.85% of its portfolio assets to American International Group (AIG) alone. It also heavily invested in U.S. banks and the two dominant U.S. auto industry players. Here is a closer look at Caxton’s five bullish bets at the end of December 2012, including the stocks with dividend yields of about 2.0% that represent good value plays.
Williams Companies, Inc. (NYSE:WMB) is an operator of interstate gas, NGL transportation, and oil and gas gathering pipelines. The high-growth firm is attractive as it generates significant fee-based revenues from long-term contracts that are non-dependent on commodity price fluctuations. Instead, they depend on transported volumes, which have been surging amidst the shale gas output boom. These revenues at Williams Companies, Inc. (NYSE:WMB) are forecasted to increase notably in coming years. The fee-based revenues provide for secure cash distributions, which, due to the capacity expansion at WMB and its interests, will result in increasing cash flows and distributions. The company is currently paying a yield of 3.9%. It has a solid distribution coverage of 1.54x. WMB’s distributions are projected to increase by 20% this year and next. Its total adjusted segment profit is expected to rise about 63% by 2014. Some analysts see WMB as undervalued given its robust growth and an increasingly more stable revenue profile. Last quarter, Caxton initiated a new position in Williams Companies, Inc. (NYSE:WMB) worth more than $53 million.
JPMorgan & Chase Co. (NYSE:JPM), the largest U.S. bank by assets, was another bullish bet by Caxton in the fourth quarter. The hedge fund raised its share holdings in JPM by 137% to about 1.1 million shares or some $49 million. The bank appears undervalued. Its ROE of 10.7% is better than the industry average of 8.0%. Yet, the bank is trading at book value, which is still an 11% premium to its peer group, but a 40% discount to its rival Wells Fargo & Co. (WFC). JPMorgan & Chase Co. (NYSE:JPM) has just passed the Fed stress test, with the bank’s Tier 1 common capital ratio falling under the severely adverse scenario from 10.4% in Q3’12 to a projected 6.8% in the Q4’14. The stress test, which serves as a basis for the Fed’s approval of the banks’ capital plans, showed JPM’s capital ratio above the regulatory minimum of 5%, but below the average capital ratio for the 18 banks under the review and below the ratios of its main peers Citibank (C) and Bank of America Corporation (BAC). JPM itself came with a more upbeat result of a similar stress test scenario (check it out here). Because it passed the Fed stress test, JPMorgan & Chase Co. (NYSE:JPM) is expected to seek a dividend increase and an annual share buyback plan worth only half its last-year’s $15 billion, according to FT. Analysts polled by Bloomberg expect the bank to raise its dividend by 16.7%. JPM has a dividend yield of 2.4% and a payout ratio of 22%.
Ford Motor Company (NYSE:F), the second biggest U.S. automaker by market share, was also Caxton’s fourth-quarter bet. The hedge fund raised its share holdings in Ford by 13% to about 3.4 million shares or some $44 million. Ford is more attractively valued than some of its peers. However, while it boasts a robust long-term EPS CAGR of 11%, its forecasted EPS growth is still slower than that of its main rivals. However, Ford pays an attractive dividend, while General Motors Co. (GM) does not. Ford has a dividend yield of 3.1% and a payout ratio of 29%. Its dividend has doubled over the past year. Ford’s rebounding growth bodes well for continued dividend growth. Ford’s sales are rising at a healthy clip—up 9.3% year-over-year in February. A pent-up demand in the U.S. amidst a record-high average age of the passenger fleet is likely to sustain the pace of growth in U.S. vehicle sales. Ford sees 2013 U.S. sales rising as much as 8%. The automaker’s sales are also booming in China and India. While Europe remains a drag on profitability, a recovery in sales there can be expected later this year, with Ford returning to a break-even by 2015. In terms of valuation, Ford is trading at 9.2x forward earnings, below its industry multiple of 16.2x. However, given its projected growth, GM may appear a better value at a forward P/E of only 8.4x. Caxton also held a stake in GM at the end of last year.
Macy’s, Inc. (NYSE:M), a leading U.S. department store retailer, was a nearly-$20 million bet by Caxton in the previous quarter. The hedge fund increased its share holding in Macy’s by 761% to 510,000 shares. Macy’s has achieved a fourth consecutive year of double-digit EPS growth and has been beating analyst quarterly EPS expectations for nearly three years. While comparable sales growth has been decelerating—rising 3.7% in 2012, down from 5.3% in 2011 and 4.6% in 2010—it is projected at a still respectable 3.5% in 2013. The 2013 EPS guidance is notably bullish, with EPS expected to increase by as much as 14.2% over the last year. Top-line growth driven by omnichannel integration and robust e-commerce sales as well as improved cost management will boost bottom-line growth. Analysts see Macy’s long-term EPS CAGR at 10.7%. A faster pace of job creation and the stock market gains bode well for the company, too. Macy’s pays a dividend yield of 1.9% on a payout ratio of 21%. Its dividends are due for another annual increase this month, after being doubled over the past year. In terms of valuation, Macy’s looks like a good value. It is trading at only 10.4x forward earnings, below its industry multiple of 14.2x. However, its price-to-book is higher than that of its peer group.
Caterpillar Inc. (NYSE:CAT), the world’s largest construction and mining equipment manufacturer, was a new position in Caxton’s fourth-quarter portfolio. The hedge fund purchased an $11-million stake in the company last quarter. CAT looked pretty inexpensive at the time when Caxton acquired its stake in the company. Currently, the company is trading at 11.1x forward earnings, slightly below its peer group’s forward multiple. Despite the economic headwinds around the world, the company posted record revenues of $65.9 billion and a record EPS of $8.48 in 2012. With a cautious view of the global economy, the company recently projected 2013 revenues of between $60 billion and $68 billion and 2013 EPS of between $7.00 and $9.00. The potential for the upside to these numbers exists, as the company’s two largest markets, U.S. and China, are rebounding. Moreover, U.S. non-residential construction is also recovering, while the mining sector growth, the reason why Caterpillar’s reduced its 2015 outlook back in September 2012, is generally expected to improve next year. Analysts pin the company’s long-term EPS CAGR at a robust 14%. CAT pays a dividend yield of 2.3% on a payout ratio of only 26%. Its five-year annualized dividend growth averaged 10.9%.
