Hayman Capital Closes Huge McDonalds (MCD) Put Position, Turns Its Bearish Gaze on This Health Stock

Kyle Bass became a kind of legend on Wall Street after he generated an annual return of over 212% the very next year after he founded his hedge fund Hayman Capital Management in 2006. The big bet that Mr. Bass made against subprime bonds paid off well when the housing bubble burst and gave him wide coverage in the financial media. In the years since, Mr. Bass has made several big bets on sovereign debt and other assets, but none of them have performed as well as his housing shorts did. The performance of Hayman Capital’s flagship fund has been dismal for the past couple of years, which has led several investors to pull their money from the fund. From managing over $2 billion in assets at the end of 2014, Hayman Capital was down to managing around $800 million at the end of May of this year.

This fall in the fund’s assets has also impacted its U.S equity portfolio in the past few quarters. Although equities have never been the preferred asset of Hayman Capital in which to deploy its capital, the fund still used to have considerable exposure to them until some time ago. However, the recent 13F filing submitted by Hayman Capital shows that its U.S equity portfolio was worth $63.34 million at the end of September and comprised only three positions. In this article, we are going to take a look at the four major moves that the fund made during the third quarter.

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#4 McDonald’s Corporation (NYSE:MCD)

Hayman Capital Management held a large bearish position on McDonald’s Corporation (NYSE:MCD) at the end of June via Put Options underlying 750,000 shares, which it liquidated during the third quarter. The fast food giant’s stock ended the third quarter down by more than 4%, so it’s possible that the position was successfully closed for a profit, and just in time, as owing to the rally it has seen after billionaire Donald Trump was elected as the new President, the stock is currently trading up by 1.57% year-to-date. The company recently revealed that it will be expanding table service and self-ordering kiosks to all of its U.S. outlets after testing them at 500 locations. Moreover, it will also be bringing mobile ordering and payments to its U.S. stores in 2017, and will be increasing the number of digital kiosks. McDonald’s Corporation (NYSE:MCD) currently pays a quarterly dividend of $0.89 per share, which translates into a decent forward yield of 3.13%.

 – Related Reading: 16 Biggest Fast Food Chains in the US

#3 Eco-Stim Energy Solutions Inc (NASDAQ:ESES)

– Shares Held By Hayman Capital Management (as of September 30) : 2.13 Million

– Value of the Holding (as of September 30): $4.56 Million

Though Hayman Capital Management didn’t make any change to its stake in Eco-Stim Energy Solutions Inc (NASDAQ:ESES) during the third quarter, the value of the fund’s holding in the company declined by more than $1.5 million during that period. Shares of the Texas-based oilfield services company have taken a huge beating in the second-half of 2016 and are currently trading down by 36% year-to-date. In July, analysts at Credit Suisse initiated coverage on the stock with an ‘Outperform’ rating and $5 price target. For its most recent quarter, Eco-Stim Energy Solutions Inc (NASDAQ:ESES) reported a loss of $0.35 per share on revenue of $2.12 million versus analysts’ expectation of an EPS loss of $0.28 on revenue of $3.18 million.

We’ll check out two more of the fund’s equity positions on the next page.

#2 Shire PLC (ADR) (NASDAQ:SHPG)

– Option Type: Put (Bullish)

– Shares Covered Under The Options Held By Hayman Capital Management (as of September 30): 111,000

– Value of the Holding (as of September 30): $21.32 Million

Moving on, Hayman Capital Management made a large bearish bet on Shire PLC (ADR) (NASDAQ:SHPG) during the third quarter in the form of Put options. This position would have yielded huge returns for the fund last month, when shares of the UK-based drug marker tanked by more than 13%. This decline in the stock also took a toll on the First Trust IPOX-100 Index Fund (ETF) (NYSEARCA:FPX), which counts Shire PLC (ADR) (NASDAQ:SHPG) as one of its major holdings. The First Trust IPOX-100 Index Fund (ETF) (NYSEARCA:FPX) tracks and seeks to replicate the returns of the IPOX-100 U.S. Index. As of November 2, Shire PLC (ADR) (NASDAQ:SHPG) was the fourth-largest holding of the First Trust IPOX-100 Index Fund (ETF) (NYSEARCA:FPX), accounting for 4.77% of the ETF’s assets. On November 14, analysts at Leerink Swann reiterated their ‘Buy’ rating on Shire’s stock while setting a price target of $198 on it, which represents potential upside of over 11%.

#1 NMI Holdings Inc (NASDAQ:NMIH)

– Shares Held By Hayman Capital Management (as of September 30) : 4.91 Million

– Value of the Holding (as of September 30): $37.46 Million

NMI Holdings Inc (NASDAQ:NMIH) continued to remain the top stock pick of Hayman Capital Management at the end of the third quarter, despite the fund reducing its stake in the company by 8% during that period. NMI Holdings Inc (NASDAQ:NMIH)’s stock has been on a solid uptrend since the beginning of July and is currently trading up by 33.68% year-to-date. According to analysts, the stock could see further upside going forward on the back of the numerous tailwinds that the mortgage insurance industry is facing. All five leading analysts on Wall Street who cover the stock currently have a ‘Buy’ rating on it, with an average price target of $9.88, suggesting upside potential of nearly 10%. For its fiscal 2016 third quarter, NMI Holdings reported EPS of $0.12 on $31.8 million of net premium earned, whereas analysts had forecasted it to report EPS of $0.08 on $30.28 million of net premium earned.

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