Hudson Bay Capital Management’s Top Stock Picks

In its latest 13F filing filed for the reporting period of September 30, Hudson Bay Capital Management, managed by Sander Gerber, disclosed the holdings in its public equity portfolio worth almost $1.04 billion in aggregate. Given that the New York City-based fund that focuses on catalyst-driven absolute return strategies has done well since inception, let’s take a look at Hudson Bay Capital’s top stock picks, including XPO Logistics Inc (NYSE:XPO), Alibaba Group Holding Ltd (NYSE:BABA), Yahoo! Inc. (NASDAQ:YHOO), Zoetis Inc (NYSE:ZTS), and HC2 Holdings Inc (NYSEMKT:HCHC)

But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 36 month period beginning from September 2012 (see the details here).

#5 HC2 Holdings Inc (NYSEMKT:HCHC)

Shares held (as of September 30): 876,542
Total Value (as of September 30): $27.61 million
Percent of Portfolio (as of September 30): 1.20%

Hudson Bay Capital Management added 12,670 shares to its HC2 Holdings Inc (NYSEMKT:HCHC) position from June 30 to September 30 making HC2 Holdings Hudson Bay’s 5th largest non-index equity position.  HC2 Holdings recently raised gross proceeds of over $51 million by selling 7.35 million shares at $7 each. The company plans to use the proceeds to finance potential accretive acquisitions, including pending insurance company buys. Of the around 730 elite funds we track, eight funds owned $46.57 million of HC2 Holdings Inc at the end of September, versus 10 funds and $32.34 million at the end of June.

#4 Zoetis Inc (NYSE:ZTS)

Shares held (as of September 30): 700,700
Total Value (as of September 30): $28.86 million
Percent of Portfolio (as of September 30): 1.25%

Along with Hudson Bay, Bill Ackman’s Pershing Square is a big believer in animal drug maker Zoetis Inc (NYSE:ZTS). Pershing Square reported a holding of 41.82 million shares at the end of September, making ZTS Ackman’s 5th largest equity position. Because of cost cutting, ZTS margins are creeping higher, and the company has beaten analyst earnings expectations every quarter this year. Zoetis is also expanding, having recently completed a $765 million acquisition of Pharmaq, a maker of farmed fish vaccines and drugs. ZTS shares are up by 8.7% year-to-date so far.

#3 Yahoo! Inc. (NASDAQ:YHOO)

Shares held (as of September 30): 2.68 million
Total Value (as of September 30): $77.58 million
Percent of Portfolio (as of September 30): 3.37%

Although Yahoo’s shares have not done well this year, losing over 30% year-to-date, the path of least resistance certainly looks to be in the upward direction. Yahoo is considering spinning off its web properties in a transaction that should add up to around $1.0 billion of cash to Yahoo’s balance sheet. The remaining company’s value will depend on how Alibaba does. Seeing as Alibaba’s stock is on an upward trend again, Yahoo shares may be too. Hudson Bay cut its Yahoo! Inc. (NASDAQ:YHOO) stake by 41% in the quarter, but still owned 2.68 million shares at the end of September, equal to 3.37% of its equity portfolio.

#2 Alibaba Group Holding Ltd (NYSE:BABA)

Shares held (as of September 30): 1.43 million
Total Value (as of September 30): $84.26 million
Percent of Portfolio (as of September 30): 3.66%

Alibaba Group Holding Ltd (NYSE:BABA) has been relentlessly beaten down this year for various reasons, including Barron’s writing a negative piece on the company, Jim Chanos stating that the company is a short, and the Chinese economy no longer growing as fast as it once did. Not helping matters is the fall in the Shanghai index earlier this year, which led investors to sell Alibaba shares first and ask questions later. Fortunately for Alibaba, the Shanghai index has stabilized and Alibaba’s earnings have been solid so far. Hudson Bay added to its Alibaba Group Holding Ltd (NYSE:BABA) stake in the third quarter, upping its holdings by 37% to 1.43 million shares.

#1 XPO Logistics Inc (NYSE:XPO)

Shares held (as of September 30): 3.55 million
Total Value (as of September 30): $84.61 million
Percent of Portfolio (as of September 30): 3.67%

Out of all the companies listed on the NASDAQ and NYSE, Hudson Bay seems to be the most bullish on XPO Logistics Inc (NYSE:XPO), a supply chain solutions provider that has grown relentlessly in the last two years through M&A. Hudson Bay increased its position by 76% in the third quarter to 3.55 million shares, making XPO the fund’s top pick. Shares are down by 27% year-to-date because XPO acquired trucking companies Con-way Inc and Norbert Dentressangle SA in deals that alienated many investors who liked the company’s previous infrastructure light business model. If XPO management executes, however, and delivers on the synergies promised, XPO shares will prove to be cheap at current prices in the long run.

Disclosure: none