The Eclectic Mix of Stocks That Front Centerbridge Partners’ Portfolio

Mark T. Gallogly‘s Centerbridge Partners held an equity portfolio with a market value of $1.72 billion at the end of September according to the firm’s latest 13F filing. The fund, which is the steering committee of the Ad Hoc Group that was actively negotiating with the Puerto Rican government following a sharp fall in its debt holdings following the news of the country’s possible default, boasts an eclectic mix of stocks atop its portfolio, including a media company, a financial stock, a retailer, and a hotel chain. In this article we’ll take a look at the fund’s top equity bets heading into the fourth quarter and see how the firm has traded these stocks recently.

Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 102% over the last 38 months and outperformed the S&P 500 Index by 53 percentage points (see the details here).

#5 Tribune Media Co (NYSE:TRCO)

 – Shares held (as of September 30): 1.51 million

 – Total Value (as of September 30): $53.75 million

The firm’s Tribune Media Co (NYSE:TRCO) holding remained unchanged during the September trimester. Centerbridge initiated the holding during the fourth quarter of 2014 and made small additions over the next two quarters. So far this year the stock has fallen by about 40%, as it has fallen victim to cord-cutting fears. Howard Marks‘ Oaktree Capital Management is the largest stockholder of Tribune Media Co (NYSE:TRCO) within our database, as it holds more than 14.14 million shares of the company.

#4 Genco Shipping & Trading Limited Ordinary Shares New (Marshall Islands) (NYSE:GNK )

 – Shares held (as of September 30): 22.76 million

 – Total Value (as of September 30): $89 million

This newly-initiated stake in Genco Shipping represents about 5.17% of Centerbridge’s portfolio. So far this year, Genco Shipping & Trading Limited Ordinary Shares New (Marshall Islands) (NYSE:GNK)’s stock has cratered by more than 77% due to the challenging dry bulk market and currently has an RSI value of 36, indicating that it is nearing oversold territory, which likely prompted the purchase by Centerbridge. As of mid-November, the short interest in the stock stood at 3.98% of the outstanding shares. Of the over 700 hedge funds tracked by Insider Monkey, Centerbridge is the largest stockholder of Genco Shipping & Trading Limited Ordinary Shares New (Marshall Islands) (NYSE:GNK) followed by Jeffrey Bersh and Michael Wartell‘s Venor Capital Management, which owns about 1.33 million shares of the company.

#3 Macy’s, Inc. (NYSE:M)

 – Shares held (as of September 30): 1.85 million

 – Total Value (as of September 30): $94.69 million

Centerbridge hiked its stake in Macy’s, Inc. (NYSE:M) by 54% during the third quarter, despite a nearly 41% fall in the company’s shares this year. Hedge funds within our database were also generally bullish on the company, as a total of 67 firms had investments worth $1.59 billion in the company at the end of September, compared to 61 funds with $2.20 billion in shares at the end of the previous quarter. The stock fell by about 25% during this period. Jeffrey Smith’s Starboard Value LP heads this list, owning over 3.26 million shares of Macy’s, Inc. (NYSE:M).

#2 Ally Financial Inc (NYSE:ALLY)

 – Shares held (as of September 30): 6.53 million

 – Total Value (as of September 30): $133.04 million

Centerbridge cut its stake in Ally Financial by 24% during the July-to-September period. In its financial results for the third quarter Ally Financial Inc (NYSE:ALLY) delivered EPS of $0.51 which was in-line with the estimates, while its revenue of $981 million represented a 4.8% increase on a year-over-year basis. Stephen Feinberg‘s Cerberus Capital Management and Richard Perry’s Perry Capital are the two largest stockholders of Ally Financial Inc (NYSE:ALLY) within our database, with respective holdings of 41.52 million shares and 22.60 million shares.

#1 Extended Stay America Inc (NYSE:STAY)

 – Shares held (as of September 30): 47.66 million

 – Total Value (as of September 30): $799.76 million

Centerbridge remains heavily invested in Extended Stay America Inc (NYSE:STAY), with its unchanged holding of the stock representing about 46.47% of its portfolio and 19% of the company’s outstanding stock. The company managed to beat both the top and bottom line estimates in its financial results for the third quarter, with operating margin improving by 310 basis points year-over-year to 56.2%, owing to higher room rates. Recently, Extended Stay also announced a secondary offering of 15 million shares. John Paulson‘s Paulson & Co holds an identical 47.66 million shares stake in Extended Stay America Inc (NYSE:STAY).

Disclosure: None