Highly Regarded Value Investor’s New Stock Moves

Abrams Capital, the Boston-based, value-focused hedge fund founded by reclusive billionaire David Abrams, recently revealed its 13F portfolio as of the end of 2016 via a filing submitted with the SEC. According to the filing, Abrams Capital’s portfolio was worth $2.72 billion at the end of December, which was only a fraction of the $8.5 billion in assets that the fund, one of the 140 Biggest and Most Famous Activist Hedge Funds in the world, currently manages.

Being a value investor, Mr. Abrams makes very few changes to his portfolio on a quarterly basis and as the recent 13F filing showed, the fourth quarter of 2016 was no different. Unlike several other hedge funds that used the fourth quarter rally to reduce their holdings, Abrams Capital didn’t reduce its stake in any of its holdings during the period. However, it did sell off its entire stake in two stocks during the fourth quarter, in addition to initiating stakes in five stocks and increasing its holding in two stocks. In this article, we are going to focus on the five major moves the fund made during the final quarter of 2016.

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 39.7%, topping the 24.1% gain registered by S&P 500 ETFs. Insider Monkey’s enhanced small-cap strategy registered gains of more than 45% over the last 12 months and outperformed SPY by more than 30 percentage points in the last 4.5 years (see details here).

Opus Bank (NASDAQ:OPB)

Abrams Capital liquidated its entire stake of 1.05 million shares of Opus Bank (NASDAQ:OPB) during the final three months of 2016. The fund had initiated its stake in the commercial bank during the second quarter of 2014, which was the same quarter in which the bank had its IPO. Since the end of that period, Opus Bank (NASDAQ:OPB)’s stock has declined by more than 26%, with most of those losses coming in October of last year after the company reported disastrous numbers for its third quarter and suspended its quarterly dividend payout. On February 13, Opus Bank revealed that it has received a stock permit from the California Commissioner of the Department of Business Oversight for the sale of $53 million of its common stock in a private placement that it had previously announced. Most analysts who cover the stock are bearish on it, citing the company’s excessive leverage and the dismal health of the bank’s loan book. However, the hedge funds that we track in our database collectively grew more bullish on the bank heading into 2017, with a net total of four more funds long the stock, bringing the total to 14.

Head to the following page, where we’ll analyze two other big moves made by Abrams during Q4.

AMERCO (NASDAQ:UHAL)

– Shares Held By Abrams Capital (as of December 31): 102,860

– Value of Holding (as of December 31): $38.01 Million

AMERCO (NASDAQ:UHAL) made its debut in Abrams Capital’s portfolio during the fourth quarter. Shares of the do-it-yourself moving and storage operator have remained range-bound since the beginning of 2016, and are currently trading up by 4.36% for 2017. Despite being a fairly large company (its market cap is over $7 billion), coverage of AMERCO (NASDAQ:UHAL)’s stock by leading analysts and research firms on Wall Street has been next to nil, which makes it hard for retail investors to evaluate the stock. However, since a noted value investor like Abrams Capital, which is known for its due diligence, has initiated a stake in the company and the stock is currently trading at a forward P/E of only 16.92, that might provide some conviction to any retail investors who have been sitting on the sidelines to go ahead and buy it. On February 13, the company declared a quarterly dividend of $1 per share, in-line with its previous payout, which translates into a forward yield of 1.04%. Though ownership of AMERCO among the investors in our database declined by three to 19 during the fourth quarter, the aggregate value of their AMERCO holdings rose by 23% during that time to $418.31 million.

Quality Care Properties Inc (NYSE:QCP)

– Shares Held By Abrams Capital (as of December 31): 4.46 Million

– Value of Holding (as of December 31): $69.11 Million

Quality Care Properties Inc (NYSE:QCP) is a healthcare REIT that was spun off from HCP, Inc. (NYSE:HCP) during the fourth quarter, the same period in which Abrams Capital initiated its stake in the company. Immediately after Quality Care Properties Inc (NYSE:QCP) started trading as an independent entity, its stock was hammered by bears amid concerns over litigation involving the REIT’s main tenant, HCR ManorCare. However, the stock has recovered since then and is currently trading up by 22% in 2017. 14 other hedge funds that we follow took stakes in QCP during the fourth quarter, collectively owning 20% of the stock’s float.

We’ll check out how Abrams Capital traded Willis Towers Watson and Time Warner Inc during Q4 on the final page of this article.

Willis Towers Watson PLC (NASDAQ:WLTW)

– Shares Held By Abrams Capital (as of December 31): 1.18 Million

– Value of Holding (as of December 31): $144.7 Million

Moving on, Willis Towers Watson PLC (NASDAQ:WLTW) was another stock that made its debut in Abrams Capital’s equity portfolio during the fourth quarter. However, during that time several other hedge funds that we track sold off their stakes in the company, as the number of investors betting on the global advisory, broking and solutions company fell by 10 to 31, while the aggregate value of their holdings in it shrank by $49.35 million to $279.41 million. Willis Towers Watson PLC (NASDAQ:WLTW)’s stock has not moved much since Willis Group merged with Towers Watson last year. For its fiscal 2016 fourth quarter, the company reported EPS of $1.88, beating analysts’ estimate by $0.26, on revenue of $1.93 billion, which was $30 million less than what analysts had estimated. On February 14, analysts at Citigroup reiterated their ‘Buy’ rating on the stock while setting a price target of $156 on it, suggesting potential upside of nearly 22%.

Time Warner Inc (NYSE:TWX)

– Shares Held By Abrams Capital (as of December 31): 3.05 Million

– Value of Holding (as of December 31): $294.42 Million

Time Warner Inc (NYSE:TWX) was another new portfolio holding of Abrams Capital at the end of 2016, becoming its fourth-largest equity holding in terms of value at the end of the year. Being a prime merger-arbitrage play, several other hedge funds also initiated a stake in Time Warner Inc (NYSE:TWX) during the fourth quarter, including Simon Davies‘ Sand Grove Capital Partners and Robert Emil Zoellner’s Alpine Associates. During that time, the number of investors in our system that were long the stock increased by a whopping 70% to 94, with the aggregate value of their holdings in the company more than doubling to $6.92 billion.  Time Warner Inc’s stock has registered a gain of over 46% in the last year, mostly on the back of the buyout offer made by AT&T Inc. (NYSE:T), which was announced in October. The stock is currently trading at a 9% discount to the $107.50 per share price offered by AT&T Inc. (NYSE:T), suggesting considerable uncertainty regarding completion of the deal. In order to overcome some of the regulatory hurdles that surround the deal, Time Warner announced on February 13 that it plans to sell one of its broadcast stations in Atlanta.

Disclosure: None