Billionaire Michael Price’s MFP Investors is a value and activist hedge fund which Price founded in 1998 after earning considerable money from the sale of Heine Securities. We have gone through the fund’s 13F filing for the end of September and while there was little activity at the top of Price’s portfolio we think that we’ve been able to pick out some of his thoughts on names and market trends. Read on for our analysis of MFP Investors’ portfolio and compare its positions to previous filings.
Intel. Price added to his holdings of Intel Corporation (NASDAQ:INTC) with 1.6 million shares of the stock in the portfolio at the end of September (compared to 1.3 million at the beginning of July). We’ve noted that there was little change in many of the large positions from last quarter, so the fact that Price increased his stake in Intel- which had been his largest position- is somewhat significant. While many verticals in the computing industry are slumping, driving down sales at many chip manufacturers tied to PCs in particular, Intel has fought its way to a more modest decline in its business. Its earnings are expected to continue to decline, but the forward P/E is 10 and for now Intel pays a dividend yield above 4%. We looked at Intel in October and thought that the stock was a good buy relative to its peers.
Gulfmark. Another stock that Price bought during the third quarter- increasing his stake by about 10%- was Gulfmark Offshore, Inc. (NYSE:GLF), which owns a fleet of offshore supply vessels which serve oil and gas companies engaged in offshore drilling and production. Gulfmark’s revenue and earnings were down slightly in the third quarter compared to the third quarter of 2011, and the stock tends to be correlated with the price of oil (since higher oil prices make offshore drilling more economical, thus driving demand for Gulfmark’s services). Wall Street analysts expect strong earnings growth in 2013, however, and so the stock trades at only 9 times forward earnings estimates.
Finance & Insurance. Four of Price’s top six 13F holdings were finance or insurance companies, just as they had been three months earlier. They represented a broad spectrum of industries: megabank Citigroup Inc. (NYSE:C); small regional bank West Coast Bancorp (NASDAQ:WCBO), whose market capitalization is only about $410 million; and insurance companies Alleghany Corporation (NYSE:Y) and Symetra Financial. There’s still a case to be made for Citi as a value stock, since it trades at about a 40% discount to the book value of its equity and at a forward P/E of 8. Fellow billionaire David Tepper’s Appaloosa Management had increased its own stake in Citigroup during the second quarter of 2012. However, while we’d been bullish on Citi over the summer we think that the stock has risen enough that investors who want a megabank may want to look at JPMorgan Chase or even Wells Fargo instead. West Coast Bancorp is almost the opposite of Citi: a much smaller bank, it trades at a premium to its book value (the P/B ratio is 1.3) and at 18 times consensus earnings for 2013. Its business has been pretty stable recently. Though we aren’t as familiar with small regional banks, we think that there are probably better values in the industry that don’t carry multiples that high. The insurers have been reporting much higher net income numbers than a year ago, and for the most part their multiples look good- both trade at a discount to book value, with Symetra’s P/B being particularly low. They might be good stocks to look at; we’d expect their earnings growth to slow down, but they’d be good values at their current prices even given a low growth rate.
We therefore have mixed reviews on Price’s finance and insurance picks, partly because we think that there are cheaper banks available in the market. Gulfmark seems like a good way to go long offshore drilling activity, but given the explosive growth of onshore production we’re not sure oil prices will rise enough to support the expected growth in offshore drilling. Our mindset on Intel is similar: good buy relative to its peers, but tied closely to an industry that we’d be wary of at this time.
