New Additions Highlight Kyle Bass’ Top Stock Picks for Q4

Kyle Bass of Hayman Advisors is one investment manager with great cachet, which includes having a chapter dedicated to him in Michael Lewis’ post 2007-08 financial crises book ‘Boomerang’. After all, Bass’ short bets surrounding subprime mortgages helped him return a whopping 212% in 2007. According to his fund’s latest 13F filing, the market value of its public equity portfolio stood at $216.66 million at the end of September, with 45% of it being represented by the healthcare sector. Let’s take a closer look at Hayman’s top holdings heading into the fourth quarter.

Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole; yet investors have been stuck (until now) investing in all of a hedge fund’s stocks: the good, the bad, and the ugly. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? These top small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Even better, since the beginning of forward testing at the end of August 2012, the strategy worked just as our research predicted and then some, outperforming the market every year and returning 102% over the last 38 months, which is more than 53 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

#5 BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)

Shares held (as of September 30): 129,501

Total Value (as of September 30): $13.64 million

Bass acquired some 119,600 shares of BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) during the September trimester. The stock of the $15.53 billion biotechnology company is up by more than 5% over the last 12 months, which doesn’t compare favorably with the over 19% average gains posted by the industry. Among about 730 hedge funds that we track, Baker Bros. Advisors, managed by brothers Julian Baker and Felix Baker, is the larger stockholder of BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), owning almost 4.08 million shares.

#4 GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH)

Shares held (as of September 30): 210,715

Total Value (as of September 30): $19.25 million

His firm’s newly-initiated stake in GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) represented about 8.9% of Bass’ portfolio. Late last month, ROTH Capital initiated coverage on the UK-based biopharmaceutical company, putting a gargantuan price target of $130 on it, which represents upside of nearly 50%. The company uses cannabinoids as treatments of conditions such as multiple sclerosis spasticity and cancer pain and hence offers a unique play in the healthcare space. Samuel Isaly’s health care-focused fund Orbimed Advisors is another firm that is bullish on GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), as it holds 377,100 shares of the company.

#3 CF Industries Holdings, Inc. (NYSE:CF)

Shares held (as of September 30): 464,101

Total Value (as of September 30): $20.84 million

Another newly-initiated stake by Bass during the July-to-September period, Hayman Advisors’ top bet in the fertilizer industry has seen its stock price fall by more than 13% so far this year. In comparison, the industry has posted average losses of 9.26% during the same period. The hedge funds that we track were generally bullish on the company during the third trimester, as a total of 50 funds had an aggregate investment worth $1.91 billion in the company at the end of September, compared to 47 firms with $2.29 billion worth of shares at the end of the June quarter. The stock fell by more than 30% during this period. D.E Shaw heads the list of CF Industries Holdings, Inc. (NYSE:CF)’s stockholders within our database, owning about 11.52 million shares valued at $517.33 million.

#2 Impax Laboratories Inc (NASDAQ:IPXL)

Shares held (as of September 30): 606,618

Total Value (as of September 30): $21.36 million

So far this year, the stock price of the specialty pharmaceutical company has accelerated by more than 38%. In its financial results for the third quarter, Impax Laboratories Inc (NASDAQ:IPXL) delivered EPS of $0.40, which was $0.01 more than estimates, while its revenue of $221.1 million was also $6.65 million above expectations and marked a 39.9% increase from the same quarter of last year. Jonathan Auerbach‘s Hound Partners held 7.11 million shares of Impax Laboratories Inc (NASDAQ:IPXL) at the end of September.

#1 NMI Holdings Inc (NASDAQ:NMIH)

Shares held (as of September 30): 7.37 million

Total Value (as of September 30): $56.02 million

Hayman has held a stake in NMI Holdings Inc (NASDAQ:NMIH) since the company’s IPO in the fourth quarter of 2013, and the firm remains a champion of it, adding some 1.88 million shares to the holding in the third quarter. NMI Holdings changed the way it prices borrower-paid mortgage insurance (BPMI) some months back, which has led to less competitive pricing for borrowers with FICO scores less than 740. However, for borrowers with a lower probability of default, it offers more competitive pricing than other players in the market. Howard Marks‘ Oaktree Capital Management owns about 5.47 million shares of NMI Holdings Inc (NASDAQ:NMIH).

Disclosure: None