John Burbank founded Passport Capital in 2000 after deciding that financial markets were placing too much emphasis on short-term results and not spending enough time looking at big-picture changes in the world. As such Burbank is more of a macro investor. This philosophy led Passport to short subprime mortgages in 2005, believing that investors were misunderstanding economic conditions behind the business. Passport then returned 219% in 2007. Passport, in contrast to value investors, looks for companies which have the potential for large increases in earnings rather than those which are traded at a low price relative to historical performance.
Burbank has said in the past that basic materials stocks are undervalued as companies generally won’t be able to ramp up production enough to satisfy growing global demand, and so prices will rise (thus unwittingly benefitting basic materials companies). He seems to still have this as an investment thesis: when we look at Passport’s most recent 13F filing, roughly half of its capital is invested in stocks that we’d classify as being in the basic materials sector. Read on for a quick look at five of Passport’s top stock picks and see more stocks the fund owned.
Burbank and his team also liked another chemicals company, Huntsman Corporation (NYSE:HUN), with their stake tripling between July and September to a total of over 10 million shares. At a market cap of $4.3 billion, this chemicals company is even cheaper (at 8 times trailing earnings) though its business has been struggling somewhat. The forward P/E is 9, so even sell-side analysts expect business to cool. Appaloosa Management, managed by billionaire David Tepper, was also buying shares in the third quarter (check out Tepper’s favorite stocks).
Passport also owned Vivus, a gold miner, and an energy stock:
Passport sold some shares of weight loss drug company VIVUS, Inc. (NASDAQ:VVUS) but it was still one of the fund’s five largest holdings. Vivus’s Qnexa (or Qsymia) obviously has enormous market potential for both medical and cosmetic purposes, but there is a furious debate in the investment community as to whether it or Arena Pharmaceuticals (NASDAQ:ARNA)’s Belviq will become the drug of choice (or, for that matter, if other competitors are being developed). 22% of the shares of Vivus are held short.
Kinross Gold Corporation (NYSE:KGC) was another of Burbank’s favorite stocks; Passport moved heavily into the miner and owned 9.4 million shares at the end of the quarter. Sales and net income were up modestly in Q3 2012 versus a year earlier, and with the stock down 27% in the last year the current-year P/E is only 9. Jeffrey Vinik’s Vinik Asset Management initiated a position in Kinross during the third quarter of 2012 (find more stocks Vinik was buying). The company operates globally.
The most popular energy stock among hedge funds in the third quarter was Kinder Morgan Inc (NYSE:KMI) (see the full top ten list), and Burbank was one of the funds and other notable investors with a large position in the company. Kinder Morgan, which carried out an acquisition of El Paso recently, provides oil and gas transportation (via pipeline) and storage services. However, the stock trades at a fairly high multiple of what analysts expect it to earn in 2013.
Disclosure: I own no shares of any stocks mentioned in this article.
