Silver Capital Management Trims Exposure to Its Top Picks

Bruce Silver‘s Silver Capital Management LLC has submitted its 13F filing with the Securities and Exchange Commission (SEC), revealing a US equity portfolio worth $18.61 million at the end of March. Though the New York-based fund currently manages around $180 million of investors’ money, its equity portfolio has historically been only a fraction of the total assets it manages. According to the filing, during the first quarter Silver Capital Management LLC initiated a stake in 24 stocks, raised and reduced its holdings in seven and four stocks, respectively, and closed its entire stakes in 14 companies. The filing also revealed that the fund reduced its stake in all of its four largest holdings during the first quarter, but despite that those four stocks accounted for over 27% of the value of its equity portfolio at the end of that period. In this post, we are going to discuss the fund’s top five equity picks going into the second quarter.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 McKesson Corporation (NYSE:MCK)

– Shares Owned by Silver Capital Management LLC (as of March 31): 6,780

– Value of Holding (as of March 31): $1.06 million

Let’s begin with McKesson Corporation (NYSE:MCK), which was added to Silver Capital Management LLC’s equity portfolio during the first quarter. Shares of the medical supplies distribution company started 2016 on a dismal note, falling by over 20% during the first quarter and amid a small rally in April, are currently trading 16% in green year-to-date. On February 25, the company announced that it has agreed to acquire two privately held medical firms that focus on oncology for a combined value of $1.2 billion. A week after that announcement, McKesson Corporation (NYSE:MCK) revealed that it will be acquiring Ontario-based Rexall Health from Katz Group for $2.2 billion. This deal is expected to get completed by the end of this year and will be marginally accretive to the company’s fiscal 2017 earnings. For the fourth quarter of its fiscal 2016, McKesson Corporation posted EPS of $2.44, missing the estimate of $3.14 by a wide margin, while its revenue of $46.68 billion was slightly below the expected $46.83 billion. Martin D. Sass’ MD Sass is another shareholder of McKesson Corporation, owning 447,926 shares as of the end of March.

#4 Ocean Shore Holding Co (NASDAQ:OSHC)

– Shares Owned by Silver Capital Management LLC (as of March 31): 63,681

– Value of Holding (as of March 31): $1.12 million

Silver Capital Management LLC reduced its stake in bank holding company Ocean Shore Holding Co (NASDAQ:OSHC) by 13% during the first quarter. The fund initiated a stake in the company during the third quarter of 2015 and since the end of that period Ocean Shore Holding Co (NASDAQ:OSHC)’s stock has appreciated by almost 10%. Most analysts who track the stock are bullish on it, including analysts at Sandler O’Neill, who on January 7, upgraded the stock to ‘Buy’ from ‘Hold’. On April 27, Ocean Shore Holding Co reported its fiscal 2016 first-quarter numbers, declaring EPS of $0.28 on revenue of $8.28 million for the quarter, versus analysts’ expectations of EPS of $0.27 on revenue of $8.37 million. The company currently pays a quarterly dividend of $0.06 per share, which translates into an annual dividend yield of 1.35%. Hedge funds that initiated a stake in Ocean Shore Holding Co during the fourth quarter included Brian Gaines‘ Springhouse Capital Management, which bought 90,498 shares of the company.

#3 HCA Holdings Inc (NYSE:HCA)

– Shares Owned by Silver Capital Management LLC (as of March 31): 15,415

– Value of Holding (as of March 31): $1.2 million

Moving on, HCA Holdings Inc (NYSE:HCA)’s stock fell heavily during the second-half of 2015, losing over one-fourth of its value during that time. However, this year it has managed to recoup a large amount of those losses and has gained 15% year-to-date. During the first quarter, Silver Capital Management LLC reduced its stake in HCA Holdings Inc (NYSE:HCA) by 30%. Another fund that reduced its stake in the company during that time was Ray Carroll‘s Breton Hill Capital, which brought its holding down by 15% to 12,035 shares. Last month, HCA Holdings was featured in a list released by Morgan Stanley, which included 30 stocks that can outperform the broader market over the next three years. The healthcare services company posted EPS of $1.71 and revenue of $10.26 billion, beating the consensus estimates of EPS of $1.49 on revenue of $10.24 billion.

#2 Macquarie Infrastructure Corp (NYSE:MIC)

– Shares Owned by Silver Capital Management LLC (as of March 31): 18,650

– Value of Holding (as of March 31): $1.26 million

Macquarie Infrastructure Corp (NYSE:MIC) was Silver Capital Management LLC’ top stock pick while entering 2016. However, the company lost that spot at the end of first quarter owing largely to the fund reducing its holding in it by 40% during the first three months of the year. During the same time, Stephen J. Errico‘s Locust Wood Capital Advisers sold off its entire stake in the company. Shares of Macquarie Infrastructure Corp (NYSE:MIC) have lost almost 19% in the past one year and  the company currently pays a quarterly dividend of $1.15 per share, which translates into an attractive dividend yield of 6.50%. Macquarie Infrastructure Corp posted worse-than-expected first-quarter results, which included EPS of $0.28 and revenue of $396.40 million, compared to EPS of $0.47 on revenue of $424.67 million that analysts had projected. On April 12, analysts at Barclays reiterated their ‘Buy’ rating on the stock.

#1 Triangle Capital Corporation (NYSE:TCAP)

– Shares Owned by Silver Capital Management LLC (as of March 31): 80,048

– Value of Holding (as of March 31): $1.65 million

Despite Silver Capital Management LLC reducing its stake in Triangle Capital Corporation (NYSE:TCAP) by 4% during the first quarter, the company jumped two spots during that period and ended up becoming the fund’s top stock pick going into the second quarter. Triangle Capital Corporation (NYSE:TCAP)’s stock has lost 5% so far this year, and is trading significantly down from the $30 levels registered in 2013. The specialty finance company is one of the best dividend paying stock in the small-cap universe currently with its annual dividend yield hovering around 14%. Earlier this month, Jefferies Group upgraded Triangle Capital Corporation’s stock to ‘Buy’ from ‘Hold’, while Janney Montgomery Scott upgraded it to ‘Buy’ from ‘Neutral’. On the other hand, Raymond James downgraded the stock to ‘Underperform’ from ‘Outperform’. All analysts currently have a consensus price target on Triangle Capital of $23.17, which implies an upside potential of over 27%.

Disclosure: None