Harvard Management alum Jonathan Jacobson co-founded Highfields Capital Management in 1998, with the endowment providing $500 million of the fund’s initial fundraising. We track quarterly 13F filings from Highfields as well as hundreds of other hedge funds and notable investors as part of our work developing investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year. We also like to go through individual managers’ filings; even though the information in this 13F is a bit old, investors may be able to identify interesting stocks which are worth a closer look. Read on for our quick take on Highfields’s five largest holdings from the end of March or see the full list of stocks the fund reported owning.
Jacobson and his team’s top pick from Q1 was News Corp (NASDAQ:NWSA), which has since broken up into Twenty-First Century Fox (NASDAQ:FOX) and News Corp (NASDAQ:NWSA). Spinouts of a business unit tend to create shareholder value, as management of both the spinout and the parent become better able to focus on operations (read more about spinouts) and the News Corp breakup was thought to be a similar situation by many funds. Markets have somewhat bid up the price as a result- Fox’s forward P/E is 18, for example- though that is actually in line with valuations of other large media and entertainment companies.
Canadian Natural Resource Ltd (USA) (NYSE:CNQ), a $35 billion market cap oil and gas company, was another of Jacobson’s top picks with the filing disclosing ownership of about 20 million shares. There was a significant fall in earnings in its most recent quarterly report compared to the first quarter of 2012, but the sell-side believes the company will rebound and so the trailing and forward P/Es are 21 and 12 respectively. GMT Capital, which is managed by Thomas Claugus, owned 8.8 million shares of Canadian Natural Resource Ltd (USA) (NYSE:CNQ) (which, while it has significant assets in Canada, does in fact operate globally).
The fund also included Anadarko Petroleum Corporation (NYSE:APC) among its top five picks from the first quarter of 2013. Anadarko’s trailing earnings are quite low compared to its valuation, but as with Canadian Natural Resources analysts expect the business to improve considerably. In fact, the five-year PEG ratio based on their projections is a bit below 1. We would note that the beta of 2.2 signifies a strong correlation with overall market movements. D.E. Shaw, a hedge fund run by billionaire David Shaw, was another major shareholder in Anadarko Petroleum Corporation (NYSE:APC) according to our database (find D.E. Shaw’s favorite stocks).
The 13F showed that Highfields increased its stake in United Parcel Service, Inc. (NYSE:UPS) to a total of 5.8 million shares by the beginning of April. In the first quarter of 2013, United Parcel Service, Inc. (NYSE:UPS) recorded a 7% increase in net income; this was due both to modest revenue growth of 2% and somewhat wider net margins. With the stock valued at 16 times forward earnings estimates, we think that we’d want to see more reliable earnings growth (i.e. based on revenue improvements as opposed to increases in margin) than that. Tiger Cub Lee Ainslie’s Maverick Capital was also buying United Parcel Service, Inc. (NYSE:UPS) (research more stocks Ainslie liked).
Disclosure: I own no shares of any stocks mentioned in this article.
