Billionaire Michael Price’s Conviction Stocks For Q4

MFP Investors is a New York-based activist hedge fund founded by billionaire Michael Price in 1998. Mr. Price started his career at Heine Securities in 1975 and by 1988 became the sole owner of the firm. In 1996 he sold Heine Securities to Franklin Securities for $670 million. Mr. Price is considered by many to be one of the best value investors of the current generation, though apart from using value investment principles, MFP Investors also uses contrarian investment strategies. MFP Investors recently submitted its 13F filing with the SEC for the reporting period of September 30. According to the filing, the value of the fund’s U.S equity portfolio at the end of September was around $670 million, which was 13.4% lower quarter-over-quarter. The filing also revealed that MFP Investors’ equity portfolio saw a relatively benign 20% quarter-over-quarter turnover during the period, showing that Price did not panic in the face of the market turbulence that characterized the period. Since Mr. Price’s value investment picks have a history of outperforming the overall market, we will discuss his top five stock picks going into the fourth quarter in detail below.

But first let’s understand why we at Insider Monkey track hedge fund activity. From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 38 month period beginning from September 2012, returning 102% (read the details here).

#5 Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)

 – Shares Owned by MFP Investors (as of September 30): 440,300

 – Value of Holding (as of September 30): $24.86 Million

Though MFP Investors didn’t make any changes to its stake in Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) during the third quarter and the stock of the company lost almost 4% during the same period, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) still jumped two places quarter-over-quarter to become the firm’s fifth-largest equity holding by the end of September. Another interesting thing that happened with regards to the company during the third quarter was that although the number of hedge funds covered by Insider Monkey that disclosed stakes in Teva Pharmaceutical Industries Ltd came down to 70 from 77, the aggregate value of hedge funds’ holdings in the company increased to $6.8 billion from $4.26 billion during the same period, a significant increase given the aforementioned share price decline. In July, the Israel-based pharmaceutical behemoth announced that it would be acquiring Allergan PLC (NYSE:AGN)’s generics business for $40.5 billion. This morning, reports emerged that the company would be selling $6.75 billion worth of ordinary and preferred shares to finance the deal for Allergan’s generics business, and other acquisitions. Andreas Halvorsen‘s Viking Global initiated a huge stake in Teva during the third quarter, purchasing over 8.8 million shares of it.

#4 Hess Corp. (NYSE:HES)

 – Shares Owned by MFP Investors (as of September 30): 630,000

 – Value of Holding (as of September 30): $31.54 Million

Shares of Hess Corp. (NYSE:HES) suffered a massive slump of nearly 25% during the July-to-September period, but MFP Investors largely held on to its conviction in the stock and sold only a paltry 12,500 shares of the company during that time. Though shares of the integrated oil and natural gas company have recovered in the fourth quarter, they still trade down by 20% year-to-date. For the third quarter, Hess Corp. reported a per share loss of $1.03 on revenue of $1.69 billion. Analysts had expected the company to report a per share loss of $1.20 on revenue of $1.67 billion. On November 17, analysts at Oppenheimer downgraded the stock to ‘Market Perform’ from ‘Outperform’, while their price target remain unchanged at $70. Among the 41 hedge funds covered by us that disclosed having a stake in Hess Corp. (NYSE:HES) at the end of September was David M. Knott‘s Dorset Management, which owned 200,000 shares of the company.

#3 Boston Scientific Corporation (NYSE:BSX)

 – Shares Owned by MFP Investors (as of September 30): 1.98 Million

 – Value of Holding (as of September 30): $32.5 Million

Similar to what happened with Teva Pharmaceutical Industries, MFP Investors didn’t made any changes to its stake in Boston Scientific Corporation (NYSE:BSX) during the third quarter. Owing largely to the boisterous rally shares of Boston Scientific Corporation (NYSE:BSX) enjoyed during the first quarter of the year, they are currently trading up by 38.34% year-to-date. 37 of the over 700 hedge funds that we cover reported having a stake in the company as of the end of September, with them having an aggregate value of almost $1.48 billion. On November 13, analysts at Evercore ISI reiterated their ‘Buy’ rating and $20 price target on the stock, which represents a potential upside of around 10%. With ownership of over 24 million shares of the company, Samuel Isaly‘s Orbimed Advisors was its largest shareholder at the end of September among the funds tracked by Insider Monkey.

#2 Dolby Laboratories, Inc. (NYSE:DLB)

 – Shares Owned by MFP Investors (as of September 30): 1.02 Million

 – Value of Holding (as of September 30): $33.4 Million

MFP Investors made full use of the 17.6% decline that shares of Dolby Laboratories, Inc. (NYSE:DLB) suffered during the third quarter by increasing its stake in the company by 45% during that period. Other hedge funds also largely shared the same sentiment towards the stock during that period, because even though its ownership among the hedge funds tracked by us remained the same at 21, the aggregate value of hedge funds’ holdings in it climbed to $162.44 million by the end of September from $153.44 million at the end of June, despite the big share price decline. Dolby Laboratories, Inc. came out with mixed results for its fourth quarter of fiscal year 2015. While the Street had estimated that it would declare EPS of $0.31 on revenue of $235.76 million, it declared EPS of $0.41 on revenue of $229.50 million. Peter S. Park‘s Park West Asset Management was one of the hedge funds that initiated a stake in the company during the third quarter.

#1 Intel Corporation (NASDAQ:INTC)

 – Shares Owned by MFP Investors (as of September 30): 1.85 Million

 – Value of Holding (as of September 30): $55.76 Million

Finally, not only did MFP Investors not make any changes to its stake in Intel Corporation (NASDAQ:INTC) during the third quarter, but the shares of the company also remained flat during that period, ensuring that it continued to remain MFP Investors’ top stock pick at the end of September. After declining gradually since the start of the year, shares of Intel Corporation saw a rebound in September and October which has helped it narrow its year-to-date losses down to 5%.  Most analysts that cover the company remain skeptical about its growth and the same sentiment seems to be shared by hedge funds. The number of hedge funds covered by Insider Monkey that disclosed a stake in Intel Corporation (NASDAQ:INTC) came down to 45 at the end of September from 48 at the end of June. Moreover, the aggregate value of hedge funds’ holdings in the stock also dropped to $3.67 billion from $4.21 billion. Andrew Feldstein and Stephen Siderow‘s Blue Mountain Capital reduced its stake in the company by 44% to 17 million shares during the third quarter.

Disclosure: None