In a recent quarterly report to his investors, Larry Robbins of Glenview Capital delineated the performance of Glenview Opportunity Funds through the fiscal year 2014, and highlighted investments that he is most confident about in this fiscal year. We picked out three such equity positions including, which are McDonald’s Corporation (NYSE:MCD), T-Mobile US Inc (NYSE:TMUS) and Flextronics International Ltd. (NASDAQ:FLEX), to discuss why Robbins sees these companies trending higher in 2015.
Hedge funds like Glenview Capital expend a considerable amount of resources in researching the companies that they choose to invest in. An everyday investor does not have the time or the required skill set to do so. It is also not a good idea to pay the egregiously high hedge fund fees that could range between 30% and 80% of the returns that these investment firms generate. Thus a retail investor might be tempted to follow the most popular stock picks among hedge funds themselves. Our research has shown that a portfolio based on these stock picks which is invariably comprised of large-cap companies, falls considerably short of a portfolio based on our small-cap strategy in terms of annual returns. The most popular large-cap stocks among hedge funds underperformed the market by 7 basis points per month in our back tests, whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month. We have also been forward-testing the performance of top small-cap stocks since August 2012, and they have managed to beat the market by 79.4 percentage points during that 2.5 year period (read the details here).
Larry Robbins was a trader at Leon Cooperman’s Omega Advisors before he set up his own shop in February, 2001. After being hit hard in 2008 when the fund lost nearly half of its assets, Robbins staged a strong comeback and the fund gained some 82.7% in 2009. While Glenview Capital Opportunity Fund grossed 31.57% returns for 2014, Glenview Offshore Opportunity Fund also grossed a strong 31%. The market value of Glenview’s equity portfolio stood at $19.98 billion towards the end of 2014. Holdings in the Healthcare and Consumer Discretionary sectors contributed 35% and 25% to the portfolio’s value respectively.
Flextronics International Ltd. (NASDAQ:FLEX) was Glenview’s third largest holding, as it held some 75.13 million shares valued at $839.96 million. Robbins emphasized on how the promotion of Chris Collier to Chief Financial Officer in May, 2013 has led to continued attainment of the company’s earnings commitments. Moreover, cyclical uplift from the telecom sector is also expected to result in more revenues from Flextronic’s Integrated Network Solutions segment in the second half of 2015. The company’s share repurchase program also remains strong and the current valuation is cheap as the stock trades at 10 times 2015 EPS.
Among the hedge funds that we track, 33 had an aggregate investment of $1.45 billion in the company at the end of the fourth quarter compared to 31 funds with $1.17 billion on quarter previous. Cliff Asness of Aqr Capital Management initiated a stake in the company during the fourth quarter by acquiring some 12.89 million shares valued at $144.16 million. Flextronics International Ltd. (NASDAQ:FLEX) is up by about 33% over the last 52 weeks.
Although McDonald’s Corporation (NYSE:MCD) wasn’t part of the fund’s holdings in the latest 13F filing, and has no known position in the company at present, Robbins is very confident about the future prospects of the fast food retail chain. He deems most of the company’s troubles relating to a deceleration of its top line over the past two years to be rooted in inefficiencies surrounding operational execution. He believes that the new management in the form of new CEO Steve Easterbrook will change that. Robbins believed that a simplified menu, the reduction of about $500 million from its $2.5 billion in annual SG&A expenses, franchising the 19% of stores which McDonald’s Corporation (NYSE:MCD) continues to own itself, and optimizing the capital structure through the cheap debt available nowadays will kick the company’s same store sales in the right direction.
Another stakeholder of the fast food chain banking on the turn around is Mason Hawkins. His fund Southeastern Asset Management upped its stake in the company by 65% in the fourth quarter to 11.92 million shares valued at $1.12 billion. McDonald’s Corporation (NYSE:MCD) was also among hedge funds’ favorite dividend stocks for the fourth quarter.
During the fourth quarter, Robbins increased Glenview’s stake in T-Mobile US Inc (NYSE:TMUS) by 23% to 9.85 million shares worth $265.33 million. John Paulson’s Paulson & Co held the highest stake in the company among the hedge funds that we track, with 15.34 million shares valued at $413.20 million.
Robbins initiated a stake in T-Mobile US Inc (NYSE:TMUS) in 2013 after the company came out of a reverse merger with a renewed focus, which was marked by an aggressive deployment of LTE, securing iPhone (T-Mobile being the only carrier that didn’t offer the device at the time), a move to more competitive price plans, and last year’s purchase of low-band spectrum to extend the company’s coverage. These measures have led to an increase in EBIDTA estimates for 2015 and 2016 by 16% and 30% respectively, as compared to their level in 2013. Furthermore, T-Mobile US Inc (NYSE:TMUS) is set to generate free cash flow in 2015 for the first time in its history.
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