Have Alphabet Inc (GOOGL), HP Inc (HPQ), and Three Other Stocks Reached Fair Market Value? This Fund Says Yes

Trapeze Asset Management is a Canada-based value investment fund managed by Randall Abramson and Herbert Abramson. Value investors actively seek stocks which they think are undervalued. Value investment tends to focus more on the long-term fundamental and actual worth of companies instead of volatility based on market overreactions amid good or bad news around stocks. In its third-quarter letter to the investors, Trapeze Asset Management called the post-election rally in the markets as the “most bizarre” occurrence in the finance world. The fund thinks that the prime mover of this unprecedented rally is rising interest rates. Rate hikes are helping banks and financial institutions according to the hedge fund, but they are not “necessarily” good for the overall economy.  Trapeze expects more rate hikes from the Federal Reserve in the near future.

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Trapeze Asset Management’s strategy involves buying positions in small and large cap companies and selling them when they rise close to their respective Fair Market Value (FMV). Let’s take look at some of the important stocks which were sold by the fund in the third quarter as they reached their FMVs.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

Trapeze said that it sold its stake in the search giant Alphabet Inc (NASDAQ:GOOGL) because it surpassed its TRAC ceiling or Fair Market Value. TRAC is a framework designed by Trapeze Asset Management to track changing sentiment for stocks and overall markets. TRAC uses operating assets and liabilities to gauge the real value, or Economic Capital, of a stock.  Alphabet Inc (NASDAQ:GOOGL)’s shares have gained over 4.78% year-to-date. Among the funds tracked by Insider Monkey, Natixis Global Asset Management’s Harris Associates is one of the biggest stakeholders in Alphabet with over 2.36 million shares of the company, as of the end of the third quarter. Last month, investment firm Baird reiterated an ‘Outperform’ rating for Alphabet’s stock after the company announced the creation of new Cloud Machine Learning (ML) & Artificial Intelligence to target Enterprise.

The Canadian hedge fund also sold all of its shares of HP Inc (NYSE:HPQ) after the company’s market value crossed its TRAC ceilings, in line with the fund’s fair market value (FMV) estimates for the company. At the end of the third quarter, 39 hedge funds tracked by Insider Monkey were bullish on HP Inc (NYSE:HPQ). HP reported fiscal fourth quarter earnings of $0.36 per share, in-line with the estimates, while revenue of $12.5 billion was above the Street’s projection of $11.88 billion. For the first quarter of fiscal 2017, the company expects GAAP diluted net EPS between $0.33 and $0.36. After the results, Jefferies downgraded the stock to ‘Hold’ from ‘Buy’.

On the next page, we will discuss some other important stocks which have reached their FMV according to Trapeze Asset Management.

Trapeze’s holding in Alaska Air Group, Inc. (NYSE:ALK) was bought and then sold during the third quarter,  as the fund thought the company crossed its fair market value. The stock is up by over 13% year-to-date.  Earlier this month, the Justice Department approved Alaska Air Group, Inc. (NYSE:ALK)’s $2.6 billion acquisition of Virgin Media Inc. (NASDAQ:VMED) with a condition according to which Alaska Air will have to end its route partnership with American Airlines Group. The acquisition will make Alaska Air the fifth-largest U.S. airliner by traffic. During the third quarter, the number of investors tracked by us long Alaska Air Group, Inc. (NYSE:ALK) declined by six to 36.

Trapeze also sold shares of Georgia-based self-service kiosks and ATM machines maker NCR Corporation (NYSE:NCR) in the third quarter, because, according to the fund, the company moved to its TRAC™ ceiling close to the fund’s FMV estimates for the company. NCR Corporation’s stock has gained over 70% year-to-date. On Monday, NCR Corporation’s shares went up after it had started deploying HD NCR Vitalcast digital signage solution as a new unit standard at its company-owned locations. David Cohen and Harold Levy’s Iridian Asset Management owns 2.51 million shares of NCR Corporation (NYSE:NCR) as of the end of September. Overall, 27 funds from our database held shares of NCR Corporation (NYSE:NCR) at the end of September, up by five over the quarter.

Trapeze Asset Management unloaded its stake in Harman International Industries Inc (NYSE:HAR) after it ran up its TRAC ceilings, or fair market value. A total of 33 funds tracked by Insider Monkey are long Harman International Industries Inc (NYSE:HAR) as of the end of the third quarter, down from 26 funds a quarter earlier. Earlier this month, Wells Fargo downgraded the Connecticut-based engineering products company to ‘Market Perform’ from ‘Outperform’. The stock has gained more than 17% year-to-date.

Disclosure: None