Billionaire Paul Singer founded his Elliott Associates hedge fund in 1977, making it one of the oldest hedge funds under continuous management. Prior to founding Elliott, Singer got a BS in psychology from the University of Rochester and a JD from Harvard Law School. Outlined below are some of the interesting takeaways from Singer’s hedge fund at the end of the first quarter (check out Elliott’s latest moves).
Top heavy
Elliott runs a concentrated portfolio, with 58% of its 13F portfolio invested in its top three holdings: Hess Corp. (NYSE:HES), Delphi Automotive PLC (NYSE:DLPH) and BMC Software, Inc. (NASDAQ:BMC). Hess now makes up 23.3% of Elliott’s portfolio after the fund increased its shares owned by 1,136% last quarter.
Singer has been pushing for change in Hess Corp. (NYSE:HES)’ management since the beginning of the year. He and his hedge fund got a small win earlier this month when Hess agreed to appoint a few of Singer’s board nominees.
Auto bet
Delphi Automotive PLC (NYSE:DLPH) makes up 21.1% of Elliott’s 13F portfolio. This vehicle-components manufacturer provides electrical, powertrain, safety and thermal technology solutions to the auto industry. One of the big tailwinds for Delphi should be the improving auto sales. S&P expects that Delphi could see revenue growth of at least 5.5% thanks to demand improvements in the U.S. and China, and the company’s acquisition of FCI Group’s Motorized Vehicle Division.
Delphi Automotive PLC (NYSE:DLPH)i appears to be trading at a cheap valuation, with a 15.3 times P/E, compared to Johnson Controls, Inc. (NYSE:JCI)’s 27.8 times and Gentherm Inc (NASDAQ:THRM)’s 35.7 times. Alongside Singer as one of Delphi’s top shareholders is fellow billionaire John Paulson (see Paulson’s latest moves).
Big win
One of Elliott’s biggest wins of late is BMC Software, Inc. (NASDAQ:BMC). This IT-management company accounts for 13.7% of Elliot’s public-equity portfolio. Earlier this month, the company announced it had agreed to be acquired by a group of private equity firms for $46.25 per share, which is roughly a 15% premium to the stock’s pre-deal announcement price.
What’s more is that the stock is trading around $45.50, suggesting there is upside of approximately 1.7% to the deal price. Assuming the deal is completed in six months, that’s an annualized return of 3.3%. Even if the deal falls part, BMC Software, Inc. (NASDAQ:BMC) could see more upside if it remains a public company.
First-quarter EPS came in at $0.87, compared to the $0.74 for the same quarter last year. This increase was thanks to BMC Software, Inc. (NASDAQ:BMC)s growth in cloud computing and SaaS products. The real growth driver for the future should be its cloud-management business. Gartner believes the SaaS-based business will show consistent growth through 2013, with worldwide SaaS revenue totaling $16 billion for enterprise application markets.
BMC Software, Inc. (NASDAQ:BMC) has seen a nice pop in its SaaS business customer base, growing about 80% during fiscal year 2013. The company also saw double-digit growth year-over-year in fiscal 2013 for its cloud-related license bookings. With only an 11 times forward P/E and a solid expected EPS growth rate, BMC has a PEG ratio of less than 1, making it a solid growth at a reasonable price opportunity.
New additions
A couple of new additions to Elliott’s portfolio include JPMorgan Chase & Co. (NYSE:JPM) and Dell Inc. (NASDAQ:DELL), making up the ninth and 13th spots in its 13F portfolio, respectively. JPMorgan also appears to be on the cheap side, trading at just over 8 times forward earnings, which is a 25% discount to the industry average forward P/E. Also, the major bank is trading right at the industry average on a P/B basis; meanwhile, the bank has one of the top balance sheets.
As of last quarter, its Basel I Tier 1 common ratio was 10.2% and its estimated Basel III Tier 1 common ratio was 8.9%, up from 8.7% as of the end of 2012. Book value has also been on the rise, coming in at $52.02 as of the end of 1Q compared with $51.27 at the end of 2012, and $47.48 as of 1Q 2012. I think this leading bank has room to move higher.
Dell Inc. (NASDAQ:DELL) is in the middle of a battle between founder Michael Dell and billionaire activist Carl Icahn. Founder Michael Dell had planned to take the company private for $24.4 billion, however, activist investors have come out in opposition of the deal. Icahn and other large shareholder Southeastern Asset Management proposed an alternative offer that involves keeping Dell as a public company (see what else Icahn is buying up).
While Icahn’s deal could lead to further upside for investors versus Michael Dell Inc. (NASDAQ:DELL)’s $13.65, there are still concerns related to Dell’s reliance on the PC market. Reverberating these troubles was the tech company’s 1Q results. 1Q EPS came in at $0.21 compared to $0.43 for the same period last year and below consensus forecast of $0.35. I think there are still industry headwinds for the company.
Bottom line
Elliott Associates has strong conviction in Hess Corp. (NYSE:HES), and I believe that Singer will see things through to the end, thus, investing in Hess would be a long-term positive for investors. There is likely little upside over the interim for BMC Software, Inc. (NASDAQ:BMC) since it is currently a merger-arbitrage play, but there is long-term value in the company if it remains public.
I’d also look to JPMorgan Chase & Co. (NYSE:JPM) and Delphi Automotive PLC (NYSE:DLPH) for generating long-term returns. On the other hand, although Singer bought up shares of Dell Inc. (NASDAQ:DELL), I don’t think owning it is for the faint of heart, given the uncertainties of whether Icahn can put together the funding for his deal.
Marshall Hargrave owns shares of Dell and Hess. The Motley Fool owns shares of BMC Software.
The article Billionarie Activist Paul Singer Remains Active originally appeared on Fool.com.
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