Robert Hockett’s Covalent Capital Partners has filed a 13F with the SEC, declaring its long equity positions at the end of 2014. Save for their ordering amongst the top 5, there is no change in Covalent’s top 5 positions from the end of the previous quarter, showing a clear belief in the long term prospects of these five stocks. In fact, three of those five stocks have been held by Covalent since its very first 13F was filed three years ago. Most notable amongst those three (and the overall five) are General Motors Company (NYSE:GM) and MGM Resorts International (NYSE:MGM), two brands renowned on the global stage. Let’s take a look at those and Covalent’s three other prominent holdings, after a little introduction to this fund.
Dallas, Texas-based Covalent Capital was co-founded by Hockett, formerly one of three principals at DDJ Capital Management, in 2005. Hockett has also worked with Keystone Investments, Salomon Brothers, and Trammell Crow Company. While Hockett previously served on the Board of Directors of several companies and helped negotiate restructurings and mergers, Covalent is non-activist in nature, and has rarely taken large ownership positions in companies. Despite its two largest holdings being large-cap companies in General Motors and MGM Resorts, the fund focuses primarily on middle-market companies in the consumer services industry.
General Motors Company (NYSE:GM) moves to the top of Covalent’s portfolio in terms of value, with the fund adding 71,931 shares to their position during the fourth quarter for a total of 1.22 million. General Motors of course needs little introduction, being a $60.58 billion market cap automobile manufacturer, and once the top-selling automaker in the world before being overtaken by Toyota Motor Corp (ADR) (NYSE:TM) in 2012.
General Motors Company (NYSE:GM) has suffered through a disastrous year, despite remaining the third best-selling automaker in the world. The company suffered through 79 recalls through early December 2014, involving more than 30 million vehicles, and had to set aside billions of dollars to pay out potential compensation claims involving faulty ignition switches on older-model vehicles. The overwhelming pressure led to shares sliding 14.29% for the year.
With the pressure now lifting, it appears General Motors Company (NYSE:GM) may be a solid candidate for a bounce-back in 2015, and following a strong earnings report on February 4, shares are doing just that, up 7.71% for the year. Also of the note is the fact that David Tepper’s Appaloosa Management is among a group of hedge funds that also includes Parag Vora’s HG Vora Capital Management, and Kyle Bass’ Hayman Advisors, that are putting their support behind Harry J. Wilson, who recently sent a letter to General Motors’ Board seeking election, and further proposed an $8 billion buyback of shares.
MGM Resorts International (NYSE:MGM) is now the second most valuable of Covalent’s holdings, and one of the fund’s most bullish picks of the quarter, as it increased its position in the Paradise, Nevada-based casino and resort operator by 37%, to 1.96 million shares after adding 529,402 shares during the fourth quarter. As mentioned, MGM is a long-held position for Covalent, dating back to its first 13F filing, and the company’s shares are up nearly 100% since then, thanks to an especially robust 2013.
MGM Resorts International (NYSE:MGM) has been on a downswing over the past half a year however, dipping 14.3% during that time as it failed to meet estimates for the first time in several quarters, during the third quarter of 2014. Some of those lagging revenues have come from their operations in Macau, which have suffered from less VIP gamblers in the region as the Chinese economy has begun to cool. However MGM’s refocused efforts in Las Vegas should bear fruit in 2015, as it completes an 1,100-room hotel addition to the Mandalay Bay Resort, and builds upon its standing as a leading convention host in the city, which is becoming a hub for such events.
PulteGroup, Inc. (NYSE:PHM) has moved from fifth to third in Covalent’s portfolio in terms of value, and now represents a much larger share of the portfolio despite a negligible increase of less than 1% during the quarter to 1.68 million shares. The thanks for that is due to a strong fourth quarter performance from the stock, is it increased 21.5% over the final 3 months of 2014, and has continued that trend into 2015, up a beastly 6.66% year-to-date.
The most recent charge, at the end of January, came after PulteGroup, Inc. (NYSE:PHM) released strong fourth quarter results, with earnings of $217.1 million, or $0.58 per share, on revenue of $1.82 billion, which was up 10.1% from a year ago. Analysts had expected revenue of earnings of just $0.40 per share on revenue of $1.76 billion.
PulteGroup, Inc. (NYSE:PHM) is one of the largest homebuilders in the U.S, and operates a number of different brands, including Pulte Homes, Centex (which it bought in 2009), and Del Webb, as well as its own home financing arm, Pulte Mortgage.
Citigroup Inc (NYSE:C) slides from the top of Covalent’s portfolio down to fourth, as the fund shed 118,345 shares during the quarter, 15% of its position to leave it with 625,497 shares. It is not the only fund fleeing from Citi, as David Tepper’s Appaloosa Management sold its entire 8.32 million share position in the investment bank last quarter.
Citigroup Inc (NYSE:C) recently settled the litigation case brought against both it and investment banks Goldman Sachs Group Inc. (NYSE:GS) and UBS AG (NYSE:UBS) by a group of investors, by agreeing to pay $235 million. It was alleged the banks made efforts to conceal the risks of mortgage securities sold by the now-defunct Residential Capital LLC. Citigroup is further embroiled in another lawsuit alleging price fixing on the foreign currency exchange market between it and other banks, including Goldman Sachs and Bank of America Corp (NYSE:BAC). JPMorgan Chase & Co. (NYSE:JPM) has already settled in that case, for $100 million.
Citigroup Inc (NYSE:C) faces a crucial moment in the coming weeks, as the Federal Reserve prepares to release its annual bank stress test, one that Citi failed to pass last year (the only bank with that dubious distinction). Failing again would mean a continued inability to pay shareholder dividends and buyback shares, among other things, which has kept its stock depressed for the past year.
Lastly is Dana Holding Corporation (NYSE:DAN), which slips from fourth to fifth in Covalent’s portfolio. After a bullish third quarter on the stock, when it nearly doubled its position in the manufacturer and supplier of vehicle parts, Covalent scaled back its position by 14% in the fourth quarter, to 1.39 million shares. Dana Holding was up 10% in the fourth quarter, despite a precipitous drop in the middle of October. Dana Holding is up another 5.61% in 2015, and replaced Cubist Pharmaceuticals Inc. (NASDAQ:CBST) (which was acquired by Merck & Co., Inc. (NYSE:MRK) late last year) on the S&P MidCap 400 in late January.
Dana Holding Corporation (NYSE:DAN) has soundly beaten estimates for two straight quarters heading into their upcoming earnings report, which will be announced on February 19. Dana Holding earned $0.57 per share in the most recent quarter, on revenue of $1.64 billion.
Disclosure: None
