Impala Asset Management, managed by Robert Bishop, is a Connecticut-based hedge fund that was founded in 2003. Bishop, who is a member of the vaunted “Tiger Cub” club, focuses his investment efforts on long/short equity strategies with a global perspective. With an estimated $1.8 billion in assets under management, the majority of Impala Asset Management’s clients are pooled investment vehicles and high net worth individuals.
In early 2002, Bishop left his post at Maverick Capital Limited to serve as the CIO of Soros Fund Management. A poor performance by Soros’ Quantum Endowment Fund forced Bishop to resign just 16 months after taking the position, therein leading to the establishment of his current fund. While we don’t have data on Bishop’s individual return numbers, our research has shown that Tiger Cubs as a group generate a positive alpha of 4-5% a year.
Using the hedge fund manager’s most recent 13F filings, Bishop’s holdings have generated a 0.85% return this quarter, though it serves individual investors best by looking at his top stock picks. Below are the three largest holdings in Bishop’s portfolio, in order of largest to smallest.
NVR, Inc. (NYSE:NVR)
As one of the largest and most profitable homebuilders in the United States, NVR, Inc. has been one of the best bets in a sector that has been awash with uncertainty over the past few years. Since the start of 2012, the company’s stock has generated a return of 23.4%, while flirting with its pre-recession highs near $900 a share.
The stock currently trades at a Price-to-Earnings ratio (31.1X) below the industry average (51.0X), despite the fact that NVR is expected to exhibit solid EPS expansion (12.5%) over the next five years. These forward-looking estimates are an improvement over the homebuilder’s bottom line performance over the past half-decade, in which EPS has contracted by an average of 23.5% a year.
It appears that Robert Bishop appreciates NVR’s combination of strong future earnings growth at a reasonable price. Over the past four quarters, the hedge fund manager has strengthened his position in the homebuilder by 41.1%. Bishop now holds more than $156 million worth of the stock in his portfolio, good for 9.3% of his total holdings.
Harley-Davidson, Inc. (NYSE:HOG)
Accounting for over $111 million worth of Bishop’s portfolio, Harley-Davidson, Inc. is the money manager’s second favorite stock pick. As is evident by its ticker symbol, the company is a leading manufacturer of heavy-duty motorcycles, parts, and accessories. Despite its brand-loyal legion of Harley riders, the motorcycle manufacturer’s earnings have actually declined by 9.9% per annum over the past half-decade. Consequently, the stock has been a bad investment over this time period, losing 5.1%.
Interestingly, forward-looking estimates expect growth to pick up over the next five years, while flirting with double-digit expansion through 2013. Specifically, the Street is projecting that Harley-Davidson will hit an EPS of $3.39 by the end of next year, up 45.5% from the $2.33 it reported last year.
Despite these bullish estimates, the company’s stock trades at a P/E of 15.9X, which is slightly off industry norms (16.4X), and peers like Polaris Industries Inc. (NYSE:PII) at 21.4X, and Drew Industries, Inc. (NYSE:DW) at 20.2X. When growth is factored into the equation, a similar undervaluation can be see, as Harley-Davidson sports a PEG ratio of 1.0, below both Polaris (1.1) and Drew (1.1).
Macy’s, Inc. (NYSE:M)
Between the first and second quarters of 2012, Bishop increased his position in Macy’s, Inc. by 135%. After Impala Asset Management’s most recent 13F filings, we can see that the department store chain now accounts for nearly 6.6% of the portfolio’s total value, worth just over $110 million. Out of the 36 hedge funds that currently hold shares of the stock, Bishop’s position is the largest in terms of portfolio percentage. Other Macy’s bulls include Dmitry Balyasny, Joel Greenblatt, and Richard Driehaus.
Since Bishop’s second quarter 13F filing was reported on June 30th, shares of Macy’s have returned 14.3%. Over this same time, the company reported a better than expected Q2 EPS of 67 cents a share, 3 cents above analysts’ estimates. Interestingly, the Street is expecting the retailer to finish its 2013 fiscal year with earnings of $3.38 a share, up 17.4% from the $2.88 it reported in FY 2012. Moreover, this growth is expected to continue into FY 2014, as EPS estimates average $3.85.
Despite its attractive earnings outlook, Macy’s trades at a P/E of 12.2X, far below the industry average (107.5X). A similar undervaluation can be seen when looking at the company’s P/CF (7.7X), which is below the industry norm of 8.5X. If the company can hit its year-ahead estimates, moderate price appreciate may be in store over the next 12-16 months.
To recap: NVR, Inc. (NYSE:NVR), Harley-Davidson, Inc. (NYSE:HOG), and Macy’s, Inc. (NYSE:M) are the top three stocks held by Robert Bishop’s Impala Asset Management. Each company sports attractive earnings potential at a sensible price, and may be good additions to individual investors’ portfolios. For more information on how the entire hedge fund industry is trading this trio, check out our Hedge Fund Education Center.
