Billionaire Mason Hawkins’ Top Picks From Latest 13F Filing

Mason Hawkins‘ Southeastern Asset Management is one of the oldest hedge funds in the industry. The reason why the fund has survived (and grown) for over 40 years is fairly obvious; it has managed to deliver superior returns to its investors on a constant basis. However, according to our analysis, the 29 long positions the fund held in companies worth over $1 billion during 2015 generated a weighted average loss of 14.2%. However, our analysis doesn’t include the returns generated by a fund’s positions in currencies, commodities, bonds, or its short bets. In this article we will go through the fund’s top stock picks going into 2016, which it revealed in its 13F filing with the Securities and Exchange Commission (SEC) for the fourth quarter of 2015.

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

#5 Scripps Networks Interactive, Inc. (NYSE:SNI)

Shares Owned by Southeastern Asset Management (as of December 31): 13.06 million

Value of Holding (as of December 31): $721.31 million

Though Southeastern Asset Management trimmed its stake in Scripps Networks Interactive, Inc. (NYSE:SNI) by 1% during the fourth quarter, owing to the 10% gain the stock saw, the company jumped two spots and ranked as the fund’s fifth largest equity holding at the end of December. Unlike most stocks, Scripps Networks Interactive, Inc. (NYSE:SNI) is trading in the green year-to-date. For the fourth quarter, analysts expect the company to report EPS of $1.01 on revenue of $836.84 million, compared to EPS of $1.02 on revenue of $658 million it posted for the same quarter the previous year. Billionaire Mario Gabelli‘s GAMCO investors also reduced its stake in Scripps Networks Interactive by 1% to 1.09 million shares during the fourth quarter.

#4 Wynn Resorts, Limited (NASDAQ:WYNN)

Shares Owned by Southeastern Asset Management (as of December 31): 12.58 million

Value of Holding (as of December 31): $870.42 Million

Wynn Resorts, Limited (NASDAQ:WYNN) is the only company in this list in which Southeastern Asset Management increased its stake by 3% during the fourth quarter. Due to the downturn in Macau and the excessive debt on its balance sheet, Wynn Resorts, Limited (NASDAQ:WYNN)’s stock has lost over 65% of its value in the last two years. However, on the back of better-than-expected earnings it reported recently, shares of the company are trading up over 11% year-to-date. While analysts had projected EPS of $0.76 on revenue of $948.37 million for the fourth quarter of 2015, Wynn Resorts, Limited reported EPS of $1.03 on revenue of $946.90 million. On February 17, analysts at Nomura reiterated their ‘Neutral’ rating on the stock, but upped the price target to $70 from $64. Ricky Sandler‘s Eminence Capital reduced its stake in the company by 44% to 786,140 shares during the fourth quarter.

#3 FedEx Corporation (NYSE:FDX)

Shares Owned by Southeastern Asset Management (as of December 31): 6.13 million

Value of Holding (as of December 31): $913.91 Million

Southeastern Asset Management reduced its stake in logistics behemoth FedEx Corporation (NYSE:FDX) during the fourth quarter. After having lost 18% during 2015, shares of FedEx Corporation (NYSE:FDX) have again fallen by 13.65% so far this year. Since e-commerce has been the major driver of the company’s growth in the past few years, some analysts raised concerns when Amazon.com, Inc. (NASDAQ:AMZN), one of FedEx’s largest customers, in its recent 10-K filing mentioned FedEx and other logistics companies as its competitors. However, analysts are still bullish on the company and have a consensus ‘Overweight’ rating and an average price target of $175.59. The company is scheduled to report its fiscal 2016 third quarter results next month and analysts’ estimate EPS of $2.35 on revenue of $12.41 billion. For the same quarter last year, it reported EPS of $2.01 on revenue of $11.70 billion.

#2 Alphabet Inc (NASDAQ:GOOG)

Class C Shares Owned by Southeastern Asset Management (as of December 31): 1.21 million

Value of Holding (as of December 31): $918.28 Million

Amid a nearly 25% rise of Alphabet Inc (NASDAQ:GOOG)’s stock during the fourth quarter, Southeastern Asset Management reduced its stake by 5%. Shares of the company gained ground in anticipation of the fourth-quarter results, but, due to the turmoil in the global markets, the shares are trading down by nearly 8% year-to-date. Analysts continue to remain bullish on the stock, expecting that next year the worldwide digital ad spending will surpass TV for the first time and Alphabet Inc (NASDAQ:GOOG) being the dominant player in the market will benefit greatly from the development. Currently, 43 of the 51 analysts who cover the stock have a ‘Buy’ rating and the average price target amounts to $921.16. Andreas Halvorsen‘s Viking Global increased its stake in the company by 2% to 1.14 million shares during the fourth quarter.

#1 Level 3 Communications, Inc. (NYSE:LVLT)

Shares Owned by Southeastern Asset Management (as of December 31): 32.93 million

Value of Holding (as of December 31): $1.79 billion

Despite Southeastern Asset Management having reduced its stake in Level 3 Communications, Inc. (NYSE:LVLT) by 18% during the fourth quarter, the company still remained the fund’s top stock pick at the end of December and amassed over 16% of its equity portfolio value. Although the stock has been trading in the $45-$55 range for the most part in the last year, analysts consider that it has a potential to move higher. According to them, the company has everything going in its favor currently. Its free cash flow is expected to exceed $1 billion in 2016 and its EPS are projected to grow at double digit rates. In addition, analysts think that the company might go for an acquisition or launch a stock buyback soon. On January 16, analysts at Morgan Stanley upgraded the stock to ‘Overweight’ from ‘Equal Weight’ and raised their price target to $60 from $45. Billionaire George Soros‘ Soros Fund Management increased its stake in Level 3 Communications, Inc. (NYSE:LVLT) by 59% to 3.19 million shares during the October-December period.

Disclosure: None