Billionaire Paul Singer’s Top Picks and New Bets for Q2

While 2016 hasn’t been a banner year for many hedge funds, for billionaire activist investor Paul Singer it is proving to be one of the most rewarding years he has seen in his four-decade-long career as a fund manager. Earlier this year, his hedge fund Elliott Management collected a massive payday after years of litigation when the Argentinean government finally settled its 15-year-old bond payment tussle with the fund. More recently, Mr. Singer was the recipient of Institutional Investor’s 2016 Manager Lifetime Achievement Award. These milestones could be why Elliott Management seems to be more optimistic about the future than other hedge funds, many of whom reduced their exposure to U.S equities going into the second quarter. According to the fund’s latest 13F filing, the value of Elliott’s U.S equity portfolio swelled to $9.52 billion at the end of March, from $8.27 billion at the end of 2015. The filing also revealed that Elliott’s U.S equity portfolio saw a quarterly turnover rate of 71.43% during the first quarter and that its top-10 equity holdings amassed nearly 62% of the value of the fund’s portfolio as of March 31. Considering Elliott Management appears to be more bullish on U.S equities than many of its peers, we will take a look at the two largest stakes that it initiated during the first quarter and discuss its top three equity holdings going into the second quarter.

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New Additions

Pfizer Inc. (NYSE:PFE)

 – Shares Owned by Elliott Management (as of March 31): 3.93 million

 – Value of Holding (as of March 31): $116.35 million

Regardless of whatever average price Elliott Management initiated its stake in Pfizer Inc. (NYSE:PFE) at during the first quarter, it has made a nice profit on the transaction thus far, of anywhere from 5%-to-20%. Shares of Pfizer have been on fire in the second quarter following the announcement of the termination of its merger with Allergan plc Ordinary Shares (NYSE:AGN) in early-April. The termination of the merger hasn’t stopped Pfizer Inc. (NYSE:PFE) from looking elsewhere for M&A deals. On May 16, the company announced that it has agreed to acquire California-based Anacor Pharmaceuticals (NASDAQ:ANAC) for $99.25 per share, or $5.2 billion net of cash. Anacor Pharmaceuticals is the exclusive distributor of PharmaDerm’s Kerydin topical solution in the U.S. Hedge funds that reduced their stake in Pfizer Inc. during the first quarter included Kahn Brothers, which lowered its holding in the company by 9% to 1.44 million shares.

Qlik Technologies Inc (NASDAQ:QLIK)

 – Shares Owned by Elliott Management (as of March 31): 4.63 million

 – Value of Holding (as of March 31): $134.04 million

Qlik Technologies Inc (NASDAQ:QLIK) was the largest stake opened by Elliott Management during the first quarter, amassing 1.41% of the value of the fund’s portfolio at the end of the quarter. After initiating its stake in the company in March, Elliott Management claimed that it is undervalued and stated that there were “strategic and operational opportunities” for it to increase shareholder value. Within a few weeks of Elliott Management’s comments, the company revealed that it is working with Morgan Stanley to find potential buyers and that it has already received preliminary purchase offers from private equity firms Thoma Bravo, Bain Capital, and Permira. On May 5, analysts at Jefferies Group reiterated their ‘Buy’ rating and $38 price target on the stock. Isaac Corre‘s Governors Lane also initiated a stake in the company during the first quarter, purchasing 157,000 Qlik Technologies Inc (NASDAQ:QLIK) shares.

We’ll run through Elliott’s top three holdings on the next page.

Largest Equity Holdings

#3 Alcoa Inc (NYSE:AA)

 – Shares Owned by Elliott Management (as of March 31): 77.6 million

 – Value of Holding (as of March 31): $743.41 million

After initiating a stake in Alcoa Inc (NYSE:AA) during the fourth quarter, Elliott Management proceeded to boost it by 16% during the first quarter. The fund launched an activist campaign against the company upon initiating its stake, to which Alcoa Inc (NYSE:AA) has been amenable. On February 1, the company announced that it would appoint to its board the three members nominated by Elliott, which were Ulrich Schmidt, John Plant, and Sean Mahoney. The company is currently engaged in spinning off its aerospace and auto industry alloy-manufacturing unit into an independent publicly-traded company called ‘Arconic’. Following the spin-off, the three Elliott nominees will also be added to the board of the new company. Didric Cederholm’s Lion Point upped its stake in Alcoa by 15% to 3.9 million shares during the first quarter.

#2 Hess Corp. (NYSE:HES)

 – Shares Owned by Elliott Management (as of March 31): 18.8 million

 – Value of Holding (as of March 31): $990 million

Amid a 9% rise in Hess Corp. (NYSE:HES)’s stock during the first quarter, Elliott Management increased its stake in the company by 6%. Hess Corp. (NYSE:HES) has been one of the best-performing stocks in Elliott Management’s equity portfolio this year, trading with 21.63% year-to-date gains. Despite that, most analysts who track the stock feel that it still has moderate upside. The stock currently sports an average rating of ‘Overweight’ and an average price target of $61.92 from the 25 leading analysts and research houses on the Street who follow the stock, which represents upside of about 6.7%. Hedge funds that significantly boosted their stake in the company during the first quarter included Todd J. Kantor’s Encompass Capital Advisors, which increased its holding in the company by 75% to 746,500 shares.

#1 EMC Corporation (NYSE:EMC)

 – Shares Owned by Elliott Management (as of March 31): 42 million

 – Value of Holding (as of March 31): $1.12 billion

Though Elliott Management trimmed its stake in EMC Corporation (NYSE:EMC) by 231,000 shares during the first quarter, the company continued to remain the fund’s largest equity holding. With the date of completion of Dell’s acquisition of the company approaching fast, shares of EMC Corporation (NYSE:EMC) have seen significant appreciation this month and are currently trading up by 7.7% year-to-date. For its first quarter, EMC Corporation reported EPS of $0.31 on revenue of $5.50 billion, which were below analysts’ estimates of EPS of $0.33 on revenue of $5.64 billion. On May 16, the company declared a quarterly dividend of $0.115 per share, which represents a current annual dividend yield of 1.66%. Billionaire Seth Klarman‘s Baupost Group upped its stake in the company by 78% to 51.85 million shares during the first quarter.

Disclosure: None