Michael Zimmerman left Steven Cohen‘s SAC Capital Advisors in 2005 to found his own investment firm – Prentice Capital Management LP – in New York. At SAC he traded retail and consumer stocks for 5 years. He has continued to focus on these markets after founding his own firm. Zimmerman’s main fund, Prentice Capital Partners, invests in public stocks and corporate debt, a strategy that proved to be not very successful, at least in Zimmerman’s case. In 2008, the fund registered an 88% loss. Zimmerman decided to start fresh and created a new hedge fund – Prentice Capital Management. It is a long/short fund that invests only in publicly traded stocks. Zimmerman tends to focus on undervalued companies that can gain in value by making changes in the management, strategy or capital structure of the company.
Prentice Capital Management has recently filed its first 13F report with the Securities and Exchange Commission. According to the filing, the fund’s top equity investment is KKR Financial Holdings LLC (NYSE:KFN) with 1.9 million shares valued at $23.1 million. The company has a market cap of $2.5 billion and pays an annual dividend of $0.91, which represents a yield of 7.6%. The stock has a Price to Earnings (P/E) ratio of 9.2, far below the industry average of 43.5. For the fourth quarter of 2013, KKR Financial posted revenues of $139.5 million – a 4% year-over-year increase – and earnings of $0.30 per share, down from $0.38 reported for the same period in 2012.
Not far behind is Gaiam, Inc. (NASDAQ:GAIA), a lifestyle media company. Zimmerman has acquired 2.6 million shares reportedly worth $16.9 million. So far this year the stock has been trending sideways in the $6-$7 range. Gaiam, Inc. has a market cap of $148 million and does not pay a dividend. Shares are traded at a P/E ratio of 16.0, significantly lower than the industry average of 98.6. Gaiam, Inc. (NASDAQ:GAIA) is yet to announce 2013, Q4 financial results, with analysts expecting revenues of $53.7 million and a loss per share of $0.02. During the previous quarter, the company registered revenues of $52.8 million and EPS of $0.01.
Another notable presence in the portfolio of Prentice Capital is Pacific Sunwear of California, Inc. (NASDAQ:PSUN). The fund holds 3.9 million shares reportedly worth $12.9 million. The company has a market cap of $205 million and does not pay a dividend. The stock has a beta of 2.65, which makes it a very volatile one. For the quarter ended November 2, 2013, Pacific Sunwear posted sales of $206 million, down from $215 million reported for the same period in 2012, and earnings of $0.23 per diluted share. For the current quarter the company projects revenues between $211 and $214 million, and a loss per share of $0.18 to $0.21.
Next up is J.C. Penney Company, Inc. (NYSE:JCP). Zimmerman has bought 1.2 million shares worth approximately $11 million. The company has a market cap of $2.2 billion and does not pay a dividend. The stock price has been declining since the start of 2012 amid efforts of the management to turn the company around. For the quarter ending February 1, 2014, J.C. Penney posted revenues of $3.8 billion, a 2.6% year-over-year decrease, and earnings of $0.32 per share.
Ending the top 5 is an asset management company, Resource America Inc (NASDAQ:REXI), which focuses on three segments: Financial Fund Management, Real Estate and Equipment Finance. Prentice Capital holds 970,000 shares valued at a little over $9 million. The company has a market cap of $191 million and pays an annual dividend of $0.15, which represents a 1.6% yield. For the three months ended December 31, 2013, Resource America posted revenues of $26.9 million and a loss of $0.01 per share.
Disclosure: none
Recommended reading:
Free Stock Research Report: Allegion PLC (ALLE)
