Silver Capital Management’s Top Five Holdings for Q4

The ‘bloody’ third quarter punished both small and big players within the hedge fund industry, but it is not entirely clear to what extent they managed to recoup the losses incurred during the three-month period. Silver Capital Management, founded by Bruce Silver, recently filed its 13F filing with the Securities and Exchange Commission, so it would be worthwhile to take a brief look at its top stock picks at the end of September. Silver Capital is a mid-sized investment firm that manages a relatively small equity portfolio. The New York-based firm saw the value of its portfolio decline to $9.92 million from $14.42 million during the third quarter. So let’s take a look at Bruce Silver’s five largest equity holdings at the end of the third quarter and discuss the performance of those five stocks over the past few months.

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#5 Pinnacle Entertainment Inc. (NYSE:PNK)

Shares Owned by Silver Capital Management (as of September 30): 15,589 shares

Value of Holding (as of September 30): $528,000

The New York-based investment firm initiated a 15,589-share position in Pinnacle Entertainment Inc. (NYSE:PNK) during the third quarter, which accounted for 5.32% of the firm’s entire portfolio on September 30. The shares of the casino entertainment company have advanced 56% since the beginning of the year. However, it is not entirely clear what made Silver Capital Management acquire a new stake in Pinnacle if bering in mind that the stock is trading at a trailing P/E ratio of 32.8, which compares to a ratio of 23.41 for the S&P 500. Its forward P/E ratio does not suggest too much upside either, but one should not overlook the company’s strong third-quarter financial performance. Parag Vora’s HG Vora Capital Management owned 5.25 million shares in Pinnacle Entertainment Inc. (NYSE:PNK) at the end of June.

#4 Korn/Ferry International (NYSE:KFY)

Shares Owned by Silver Capital Management (as of September 30): 16,400 shares

Value of Holding (as of September 30): $542,000

Silver Capital Management cut its position in Korn/Ferry International (NYSE:KFY) by 400 shares during the third quarter, remaining with 16,400 shares. The world’s largest executive search firm has seen its stock advance 24% since the beginning of the year, with its trailing P/E ratio of 18.65 pointing to more upside in the near future. Just recently, the company announced an agreement to acquire HR consultancy firm Hay Group for roughly $452 million. The combination is anticipated to generate cost synergies of $20 million as a result of increased technology usage and divestiture of some assets. Israel Englander’s Millennium Management was bullish on Korn/Ferry International (NYSE:KFY) at the end of the June quarter, holding approximately 476,000 shares.

#3 XO Group Inc. (NYSE:XOXO)

Shares Owned by Silver Capital Management (as of September 30): 38,529 shares

Value of Holding (as of September 30): $544,000

XO Group Inc. (NYSE:XOXO) gained one spot in the list of Bruce Silver’s top stock picks during the second quarter even though his Silver Capital Management reduced its stake in the lifestage media company by 900 shares during the three-month period. The company delivered a disappointing stock performance in the third quarter, but the 20% gain since the beginning of October overshadows the poor third-quarter performance. XO Group’s third-quarter net income added up to $2.9 million or $0.11 per diluted share, compared to $0.08 registered a year ago. The company also strives for double digit revenue growth rates, gross margins of 90-95%, and operating expense growth below its revenue growth in the upcoming years, which only represent long-term financial targets at the moment. Spencer M. Waxman’s Shannon River Fund Management acquired a 1.14 million-share stake in XO Group Inc. (NYSE:XOXO) during the second quarter.

#2 NexPoint Residential Trust Inc. (NYSE:NXRT)

Shares Owned by Silver Capital Management (as of September 30): 48,841 shares

Value of Holding (as of September 30): $653,000 shares

Bruce Silver’s mid-sized investment firm reduced its position in NexPoint Residential Trust Inc. (NYSE:NXRT) by 20,596 shares during the latest quarter. The adjusted stake accounted for 6.58% of the firm’s portfolio on September 30. The real estate investment trust, which is primarily focused on acquiring and operating Class A and B multifamily properties in large cities and suburban submarkets of large cities, has seen its shares decline 11% since the completion of its spin-off from NexPoint Credit Strategies Fund (NYSE:NHF) this spring. Earlier this week, the company’s Board of Directors announced a quarterly dividend of $0.206 per share, which is payable on December 31. James Dondero’s Highland Capital Management was the top shareholder of NexPoint Residential Trust Inc. (NYSE:NXRT) at the end of the second quarter, owning 2.64 million shares.

#1 Webster Financial Corporation (NYSE:WBS)

Shares Owned by Silver Capital Management (as of September 30): 26,492 shares

Value of Holding (as of September 30): $944,000

Webster Financial Corporation (NYSE:WBS) was the largest equity holding of Silver Capital Management at the end of the third quarter, representing 9.52% of its equity portfolio. Even so, the New York-based firm decreased its exposure to the bank holding company for Webster Bank by 600 shares during the September quarter. The shares of the bank are almost 21% in the green year-to-date, but several valuation metrics suggest even more upside. The stock is currently trading at a trailing P/E ratio of 18.39, well below the median of 23.41 for the companies included in the S&P 500 Index. Webster Financial Corporation also makes quarterly distributions of $0.23 per share of common stock, which provides a current dividend yield of 2.34%. Ricky Sandler’s Eminence Capital added a 2.96 million-share position in Webster Financial Corporation (NYSE:WBS) during the second quarter.

Disclosure: None