Marcato Capital Management Takes 5% Stake In Lear

For investors who follow hedge funds, the most complete picture of hedge fund activity comes in the form of 13F filings, generally released six to seven weeks after the end of the quarter (meaning that those for December 2012 which have not already been released are due next week). 13Fs can be used to see what an individual fund manager is thinking, or can be pooled to develop investment strategies; for example, our list of the most popular small cap stocks among hedge funds that we published in our August newsletter produced an excess return of 18 percentage points between September and January (read more about our hedge fund strategies).

Hedge funds and other major investors also file 13Ds and 13Gs shortly after they take a 5% ownership stake in a company, or shortly after they make significant changes to that position. This provides investors with more up-to-date, though much less comprehensive, information on hedge fund activity. Recently Marcato Capital Management, a fund managed by Richard McGuire, reported owning just over 5 million shares of Lear Corporation (NYSE:LEA), a $5.2 billion market cap auto parts manufacturer. Specifically, Lear focuses on seat systems and electrical distribution components. Our records show that Marcato, which now owns 5.2% of Lear, had not owned any shares at the end of September (see Marcato’s stock picks from its 13F). McGuire had previously worked at billionaire activist investor Bill Ackman’s Pershing Square.

Lear Corporation’s revenues were up 6% last quarter compared to the fourth quarter of 2012, and pretax income roughly doubled primarily due to higher gross margins. While the trailing earnings multiple is skewed by high income tax benefits, analyst consensus for 2013 is for $4.81 in earnings per share which produces a fairly low current-year P/E of 11. Estimates for 2013 place the forward earnings multiple at 9.

Auto related companies, including auto parts manufacturers, have been popular with many hedge funds seeking value; General Motors Company (NYSE:GM) had actually been one of the most popular stocks among hedge funds in Q3. Lear Corporation is no exception. During the third quarter billionaire Ken Griffin’s Citadel Investment Group increased its stake in the company by 36% to a total of 1.8 million shares (check out more stocks Citadel was buying). Fellow billionaire Steve Cohen’s SAC Capital Advisors was also buying shares and reported owning 1.1 million shares at the end of September (find Cohen’s favorite stocks). Valinor Management, managed by David Gallo, was the largest holder of the stock in our database of 13F filings with a position of 2.7 million shares (research more stocks Valinor liked).

Lear seems to be at least as good a value as its peers: