Here Are Billionaire Dollar Hedge Fund Seminole Capital’s Top Stock Picks

Michael Messner founded Seminole Capital Management Co, a New York-based hedge fund, in 1995. Due to great stock picking and prudent risk management, the fund has since grown to have an equity portfolio worth over $2.2 billion at the end of September. Given that the fund recently filed its 13F, let’s take a closer look at Seminole’s top stock picks of T-Mobile US Inc (NASDAQ:TMUS), Bank of America Corp (NYSE:BAC), Delta Air Lines, Inc. (NYSE:DAL), Tyson Foods, Inc. (NYSE:TSN), and Citigroup Inc (NYSE:C).

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Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% during the three years since the inception of this strategy at the end of August 2012 and outperformed the S&P 500 Index by 53 percentage points during that time (see more details here).

#5 Citigroup Inc (NYSE:C)

Shares held (as of September 30): 3.05 million
Total Value (as of September 30): $151.38 million
Percent of Portfolio (as of September 30): 6.76%

Seminole Capital Management cut its position in Citigroup Inc (NYSE:C) by 20% in the third quarter, but still had more than 3.0 million shares, with them accounting for 6.76% of the worth of the fund’s equity portfolio. Citigroup shares are cheap, as they trade for just 0.79-times book value. Bulls think the bank’s price will rise to book value and higher as interest rates normalize and emerging markets find their stride again. Once Citigroup builds up enough reserves, the bank could help the bull case out by returning more capital to shareholders too. Shares currently pay a nominal 0.37% dividend yield, a number that will likely rise in the coming quarters as the bank’s earnings rise. Seth Klarman‘s Baupost Group owned 102.55 million Citigroup shares at the end of June.

#4 Tyson Foods, Inc. (NYSE:TSN)

Shares held (as of September 30): 3.69 million
Total Value (as of September 30): $159.2 million
Percent of Portfolio (as of September 30): 7.11%

Shares of Tyson Foods, Inc. (NYSE:TSN) have outperformed the S&P 500 so far this year, with a year-to-date return of 13.09% versus the S&P 500’s return of 2.47%. Given Tyson Foods’ low forward P/E of 12.85 compared to the S&P 500’s forward P/E of 17.89, and the improving U.S economy, shares could do even better in the coming twelve months. Of the 730 elite funds we track, 50 funds owned $1.62 billion worth of the company’s shares on June 30, with Dinakar Singh‘s TPG-Axon Management among the funds that are long, with a holding of 3.7 million shares.

Seminole Capital has over $550 million in capital invested in its top three picks; find out what they are on the next page.

#3 Bank of America Corp (NYSE:BAC)

Shares held (as of September 30): 10.43 million
Total Value (as of September 30): $162.43 million
Percent of Portfolio (as of September 30): 7.25%

Seminole Capital Management increased its position in Bank of America Corp (NYSE:BAC) by 40% in the third quarter to 10.43 million shares, as the bank has come a long way from the Great Recession. Because of CEO Brain Moynihan’s attention to cost cutting and previous legal settlements, Bank of America’s expenses and legal fees are markedly lower than before, providing shareholders with better earnings per share. Like Citigroup, Bank of America shares are cheap, with a price-to-book ratio of 0.77 and price-to-tangible book of 1.1. Bruce Berkowitz‘s Fairholme (Fairx) owned 75.49 million shares of the investment bank at the end of June.

#2 T-Mobile US Inc (NASDAQ:TMUS)

Shares held (as of September 30): 5 million
Total Value (as of September 30): $198.88 million
Percent of Portfolio (as of September 30): 8.88%

Seminole Capital Management upped its stake in T-Mobile US Inc (NASDAQ:TMUS) by 43% in the third quarter to 5 million shares, as analysts are optimistic on the stock. 18 analysts have a ‘Buy’ rating, one has a ‘Sell’ rating, and seven have a ‘Hold’ rating. All told, analysts have a consensus per share price target of $43.25 on the stock, 11.87% upside. Hedge funds are bullish on T-Mobile US Inc (NASDAQ:TMUS) as well, as 69 funds reported holding stakes in the stock worth $3.46 billion as of the end of June, with Dan Loeb’s Third Point among them, with a holding of 6.5 million shares. Shares have done very well in 2015, with the stock up by 43% year-to-date.

#1 Delta Air Lines, Inc. (NYSE:DAL)

Shares held (as of September 30): 4.45 million
Total Value (as of September 30): $199.73 million
Percent of Portfolio (as of September 30): 8.92%

Seminole Capital Management can’t seem to get enough of Delta Air Lines, Inc. (NYSE:DAL), as the fund increased its position by 41% quarter-over-quarter to 4.45 million shares, with the position representing 8.92% of the fund’s portfolio. Delta Air Lines reported solid third quarter earnings, with earnings of $1.74 per share on revenues of $11.12 billion. As long as fuel prices stay lower for longer, look for Delta to make plenty of profits that it can use to buy back stock. Shares are up by 4.41% year-to-date.

Disclosure: None