Adam Weiss’ New Hedge Fund Is Betting On Consumer Stocks

Stillwater Investment Management, L.P. is a California-based long/short equity hedge fund founded by Adam Weiss in 2014. Prior to founding the fund, Mr. Weiss served as the co-CEO of Scout Capital between 1999 and 2014, which he co-founded. Prior to that he worked as a research analyst at billionaire Dan Loeb’s Third Point LLC for two years. He holds a B.A. in fine arts from Harvard University and an MBA from Columbia Business School at Columbia University. Stillwater Investment Management recently submitted its first 13F Filing with the Securities and Exchange Commission (SEC) for the reporting period ending December 31. According to the filing, its U.S equity portfolio at the end of December was worth $262.34 million, which represents at least a 160% increase from the end of the prior quarter, as the fund was not yet required to file a 13F, which is required of any institution with at least $100 million in assets under management. 41% of the value of Stillwater’s portfolio was invested in stocks from the information technology sector. In this article we are going to analyze the fund’s top-five equity picks, which in aggregate amassed over 60% of the value of its equity portfolio at the end of 2015.

We track hedge funds and prominent investors 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 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).

#5 Paypal Holdings Inc (NASDAQ:PYPL)

– Shares Owned by Stillwater Investment Management (as of December 31): 418,300

– Value of Holding (as of December 31): $15.14 million

Let’s start with Stillwater Investment Management’s fifth-largest equity holding, Paypal Holdings Inc (NASDAQ:PYPL). Since its spinoff from eBay Inc (NASDAQ:EBAY) last year, shares of the electronic payment processing giant have remained largely range-bound. However, after drifting lower throughout much of January, they recently spiked up when the company reported an earnings and revenue beat for the fourth quarter on January 27. While analysts were expecting Paypal Holdings Inc (NASDAQ:PYPL) to report EPS of $0.35 on revenue of $2.51 billion, it reported EPS of $0.36 on revenue of $2.56 billion. That did little to convince analysts at Piper Jaffray, who reiterated their ‘Underweight’ rating and $33 price target on the stock  (slightly below its current level) on February 9. Billionaire Kerr Neilson‘s Platinum Asset Management increased its stake in Paypal Holdings Inc (NASDAQ:PYPL) by 11% to 7.15 million shares during the fourth quarter.

#4 Apple Inc. (NASDAQ:AAPL)

– Shares Owned by Stillwater Investment Management (as of December 31): 163,500

– Value of Holding (as of December 31): $17.21 million

Shares of Apple Inc. (NASDAQ:AAPL), Stillwater’s fourth-largest holding, have been on a consistent decline since last November. However, several investors are seeing this as an opportunity and increasing their stakes in the company, including billionaire Ken Fisher. His hedge fund Fisher Asset Management increased its stake in the company by 154,271 shares during the fourth quarter. For its first quarter of fiscal year 2016, Apple Inc. (NASDAQ:AAPL) reported EPS of $3.28 on revenue of $75.87 billion, topping the consensus EPS estimate of $3.23 but falling short of the revenue estimates of $77.10 billion. Although they signified the best quarterly results in the company’s history, investors shunned the stock after Apple Inc. projected its fiscal second quarter revenue to decline by 9.2% year-over-year.

Stillwater’s top three stock picks heading into 2016 are explored on the next page.

#3 Chubb Ltd (NYSE:ACE)

– Shares Owned by Stillwater Investment Management (as of December 31): 157,200

– Value of Holding (as of December 31): $18.37 million

Moving on to Stillwater Investment Management’s third-largest equity holding, Chubb Ltd (NYSE:ACE), the company recently started trading as Chubb Corp under the ticker NYSE:CB after Zurich-based Ace Ltd. completed its acquisition of Chubb Ltd. on January 14. On January 26, Chubb Corp (NYSE:CB) reported its fourth quarter earnings, declaring EPS of $2.38 on revenue of $3.63 billion, well ahead of analysts’ expectations of EPS of $2.26 on revenue of $3.19 billion. Shortly after the earnings release, analysts at Raymond James reiterated their ‘Outperform’ rating on the stock, but lowered their price target on it to $120 from $121. Clint Carlson‘s Carlson Capital raised its stake in the company by 13% to 1.92 million shares during the October-to-December period.

#2 Yum! Brands, Inc. (NYSE:YUM)

– Shares Owned by Stillwater Investment Management (as of December 31): 318,900

– Value of Holding (as of December 31): $23.3 million

Unlike most other large-caps, Yum! Brands, Inc. (NYSE:YUM) remained resilient to the slump in the equity markets in January, ending the month on a flat note. However, its shares have fallen swiftly since the company reported its fourth quarter earnings on February 3 and now trade down by almost 8% year-to-date. Yum reported EPS of $0.68 on revenue of $3.95 billion for the quarter, compared to the EPS of $0.61 and revenue of $4.0 billion that it reported for the same quarter of last year. Speaking at the company’s annual shareholder meeting in December, executives at Yum! Brands, Inc. (NYSE:YUM) highlighted that the company will have the potential to deliver 15% annual shareholder returns (inclusive of dividend yield) once the spinoff of its China unit gets completed this year. Third Point LLC sold almost its entire stake in the company during the fourth quarter, bringing it down to 75,300 shares from the more than 5.5 million shares that it held at the end of the previous quarter.

#1 Comcast Corporation (NASDAQ:CMCSA)

– Shares Owned by Stillwater Investment Management (as of December 31): 453,400

– Value of Holding (as of December 31): $25.58 million

Looking at the performance of Comcast Corporation (NASDAQ:CMCSA)’s stock since the start of the year, it seems Stillwater Investment Management made a great move by having the company as its top stock pick at the end of December. Whereas the vast majority of stocks have plummeted heavily in the last few weeks, Comcast Corporation (NASDAQ:CMCSA) is actually trading in the green for the year. Interestingly, the company’s fourth quarter results had nothing to do with that performance , because they disappointed on both earnings and revenue. Comcast reported EPS of $0.81 on revenue of $17.73 billion for the quarter, when analysts had projected it to report EPS of $0.82 on revenue of $18.72 billion. In its earnings call following the release of those financial results, Comcast Corporation revealed that it will be a bidder during the FCC’s upcoming wireless spectrum auction and that it added $5 billion to its buyback program. Alex Snow‘s Lansdowne Partners boosted its stake in Comcast Corporation by 5% to 29.35 million shares during the fourth quarter.

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