Though they’re underrated by the average investor, the hedge fund industry’s best managers are worth paying attention to. At Insider Monkey, we track the U.S.’s top 450 funds, and our research shows that, historically, their consensus small-cap picks have beaten the market handily (see just how much here).
With that being said, most of the blogosphere’s coverage of this space is limited to the Einhorns and Buffetts of the world, but there are plenty of other hedgies to watch. One such fund is Michael Messner’s Seminole Capital Management. Seminole Capital’s 76-stock equity portfolio amounted to a value of a little over $1.7 billion last quarter, and a whopping one-third of these assets were concentrated in his top five. Intriguingly, a few of these investments were going against the actions of many of his peers, aggregately speaking. Let’s take a look.
Cisco Systems, Inc. (NASDAQ:CSCO) is Messner’s No. 1 stock pick, and has been in his top five for four consecutive quarters. The size of this position isn’t quite as large as it was at the end of Q2 2012, but the hedgie was still upping his stake by 20% in his most recent filing. The reason it’s important to note this move is because on the whole, hedge fund interest—in terms of the total number of filers—shrank by 12% over the same period.
Some of Messner’s peers who were dumping Cisco Systems, Inc. (NASDAQ:CSCO) last quarter include Whitney Tilson, Jeffrey Vinik and Mike Vranos (see Vranos and Ellington’s top picks here), so it’s intriguing to consider why he remains bullish. At a forward P/E below 10 and a dividend yield above 2.5%, Cisco offers solid value and income, and its shares have already appreciated by a little less than 5% year-to-date. About three-fifths of the analysts that cover this stock sport “Buy” ratings, and the Street’s average price target represents a 14-15% upside from current levels.
These facts, in conjunction with its latest earnings beat—that’s two-for-two in FY 2013—is another reason why Mr. Market has rewarded Messner’s move, and there’s still plenty here for investors of all philosophies to like moving forward.
Johnson & Johnson (NYSE:JNJ), meanwhile, is Messner’s second largest equity holding. The healthcare giant was a new pick for Seminole in the third quarter, and it was about as bullish here as it was on Cisco, upping its stake by a little over 20%. Likewise, the hedge fund industry as a whole had a distaste for Johnson & Johnson last quarter, as interest decreased by 15%. In a similar manner as his top pick, Messner’s conviction has paid off, as the stock is up 8% in 2013.
With a dividend yield of 3.2%, Johnson & Johnson (NYSE:JNJ) sports the lowest payout of the six major S&P 500-listed drug manufacturers, but its shares actually have exhibited the best return (3.3%) and lowest volatility (0.9%) of this group over the past month.
Total S.A. (ADR) (NYSE:TOT) and General Electric Company (NYSE:GE), meanwhile, sit at the No.’s 3 and 4 spots in Messner and Seminole’s portfolio, though the hedge fund has treated each company slightly different of late. Total was a new position last quarter—despite the fact that over one-third of the funds we track sold off the stock—and GE saw Messner cut his stake by 30%. Year-to-date, the markets have moved in the opposite direction as the hedgie had originally hoped, though, as Total is down by 5.5% and General Electric Company (NYSE:GE) has gained almost 10%. Still, this is a relatively short time frame to pass judgment, and it’s worth noting that both companies: (1) sport dividend yields in excess of 3%, (2) have seen analysts’ EPS estimates call for accelerating growth over the next half-decade, and (3) sport a book valuation that’s at a double-digit discount to industry norms.
Who’s the final member of this top five?
