Billionaire Joshua Friedman’s Canyon Capital is Betting Big on These Stocks

Billionaire Joshua Friedman and Mitchell Julis‘ Canyon Capital Advisors recently submitted its latest 13F filing with SEC for the reporting period ended June 30, revealing a long US equity portfolio worth $2.5 billion. The Los Angeles-based firm was founded in 1990 and currently manages assets worth over $20 billion. According to its latest filing, Canyon’s equity portfolio consisted of 42 holdings at the end of June and was considerably top-heavy with its top-10 holdings alone amassing over 70% of the value of the fund’s portfolio. The filing also revealed that during the second quarter the fund initiated a stake in 13 stocks, made additional purchases in three stocks, reduced its holdings in 23 stocks and sold off its entire stake in 16 stocks. In this post, we will take a look at Canyon Capital Advisors’ top-fice stock picks going into the third quarter  [excluding  EMC Corporation, which was recently acquired by Dell Inc.] and will analyze the recent performance of those stocks.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points in our backtests that covered the period between 1999 and 2012 (see the details here).

#5 Brookdale Senior Living, Inc. (NYSE:BKD)

– Shares Owned by Canyon Capital Advisors (as of June 30): 6.89 Million

– Value of Holding (as of June 30): $106.36 Million

Let’s begin with Brookdale Senior Living, Inc. (NYSE:BKD), in which Canyon lowered its stake marginally by 1% during the second quarter. Following the severe decline that it saw last year, Brookdale Senior Living, Inc. (NYSE:BKD)’s stock has largely been range-bound this year and currently trades down by 6% year-to-date. For its fiscal 2016 second quarter, the company reported a per share loss of $0.19 on revenue of $1.26 billion, versus analysts’ expectation of a per share loss of $0.12 on revenue of $1.23 billion. On August 24, analysts at JMP Securities reiterated their ‘Market Perform’ rating on the stock, but lowered their price target on it to $29 from $30, which represents a potential upside of 67.5% from its current trading price. The number of funds tracked by us that are long Brookdale Senior Living declined by four to 41 during the second quarter, while the aggregate value of their holdings in it fell by $187 million to $964.45 million.

#4 Berry Plastics Group Inc (NYSE:BERY)

– Shares Owned by Canyon Capital Advisors (as of June 30): 3.22 Million

– Value of Holding (as of June 30): $125.13 Million

Amid a 7.4% rise in Berry Plastics Group Inc (NYSE:BERY)’s stock during the second quarter, Canyon Capital Advisors lowered its holding in the company by 4%. Shares of the plastic consumer packaging provider have appreciated by 24.3% so far in 2016 and are up 196.33% in the last five years. Last month, the company announced that it has agreed to purchase AEP Industries (NASDAQ:AEPI) in a cash and stock deal valued at $765 million, including debt. Although analysts who track Berry Plastics Group Inc (NYSE:BERY) have appreciated this deal, some of them are concerned about the high leverage at which the company operates currently and the impact that this deal will have on its balance sheet. On September 13, analysts at JPMorgan Chase & Co. initiated coverage on the stock with an ‘Overweight’ rating and a $54 price target. During the second quarter, the ownership of Berry Plastics Group among funds tracked by us increased by four to 53 and the aggregate value of their holdings jumped by $67 million to $1.34 billion.

#3 Ally Financial Inc (NYSE:ALLY)

– Shares Owned by Canyon Capital Advisors (as of June 30): 10.04 Million

– Value of Holding (as of June 30): $171.47 Million

Moving on, Ally Financial Inc (NYSE:ALLY) was another stock in which Canyon Capital Advisors lowered its stake marginally during the second quarter, by 2%. Ally Financial Inc (NYSE:ALLY)’s stock was on a consistent downward trajectory since the company’s IPO in April 2014. However, that downward journey seems to have ended in June this year and the stock currently trades up  by 4.61% for 2016. According to analysts, the stock can see further upside in the coming months as the company is expected to purchase $700 million worth of its stock between the third quarter of 2016 and the second quarter of 2017 under its share repurchase program. Another reason that makes analysts bullish on the stock is its price-to-cash flow ratio of 1.6, which currently represents half of the average price-to-cash flow ratio of 3.2 at which its peers are trading at. Ally Financial recently started paying a quarterly dividend of $0.08 per share, which translates into an annual dividend yield of 1.64%. At the end of June, there were 49 investors covered by us that were long Ally Financial with the aggregate value of their holding in it amounting to $2.32 billion.

#2 MGM Resorts International (NYSE:MGM)

– Shares Owned by Canyon Capital Advisors (as of June 30): 17.41 Million

– Value of Holding (as of June 30): $394 Million

Canyon Capital Advisors increased its stake in MGM Resorts International (NYSE:MGM) by 2% during the second quarter. Other funds that also increased their stakes in the company during that time included Eduardo Abush‘s Waterfront Capital Partners and Joseph Mathias‘ Concourse Capital Management. Although MGM Resorts International (NYSE:MGM)’s stock has mostly been in a range since the beginning of 2014, it has appreciated by 13.41% so far in 2016. Last month the company announced that it has completed its previously announced issuance of $500 million of 4.625% senior notes due 2026. MGM Resorts International intends to use the proceeds from this offering to help redeem its 7.625% senior notes due 2017. For its fiscal 2016 third quarter, analysts are expecting the company to report  EPS of $0.11 on revenue of $2.37 billion. For the same quarter of the previous financial year, MGM Resorts International had reported EPS of $0.12 on revenue of $2.28 billion.

#1 Yahoo! Inc. (NASDAQ:YHOO)

– Shares Owned by Canyon Capital Advisors (as of June 30): 18.57 Million

– Value of Holding (as of June 30): $697.58 Million

With Canyon Capital Advisors increasing its stake in the company by 66% during the second quarter, Yahoo! Inc. (NASDAQ:YHOO) continued to remain the top stock pick of the fund at the end of that period. However, other hedge funds covered by us were collectively not as bullish on the company as the ownership of Yahoo! Inc. (NASDAQ:YHOO) among them declined by 16 to 81 and the aggregate value of their holdings in it slid by over $1.1 billion to $6.76 billion during the second quarter. Shares of the one famous internet company lost over 40%  of their value between January 2015 and February 2016. However, they have performed exceedingly well in the last few months as the company’s core business was acquired by Verizon Communications and will merge with AOL in a deal worth $4.83 billion. On September 12, Alibaba’s executive vice chairman, Joseph Tsai, explained why the company is not interested in buying the remaining piece of Yahoo (NASDAQ:YHOO), which includes a minor stake in Alibaba, saying that the company will have to face a hefty U.S. tax bill if it tries to acquire those shares. Buckley Ratchford‘s Wingspan Investment Management was another hedge fund that significantly increased its stake in Yahoo! during the second quarter, by 180% to 1.97 million shares.

Disclosure: None