In this article, we discuss the top 10 stock picks of James Morrow’s Callodine Capital Management. If you want to skip our detailed analysis of Morrow’s history, investment philosophy, and hedge fund performance, go directly to Top 5 Stock Picks of James Morrow’s Callodine Capital Management.
James Morrow established the Boston-based Callodine Capital Management in 2018. Before that, Morrow spent 19 years managing $40 billion in assets diversified across several equity-income strategies, including a $3 to $5 billion energy portfolio, at Fidelity Investments Inc. He worked in distressed debt for Chase Manhattan Bank before joining Fidelity. Morrow obtained his MBA from the University of Chicago after earning his bachelors in Finance from the University of Buffalo. Currently, he holds the position of director at Callodine Capital Management.
Through its asset management companies, Callodine Capital Management seeks to yield prospects with favorable valuations throughout the spectrum of the capital markets. Callodine Capital Management’s subsidiaries manage investment strategies in public stocks, private credit, and real estate on behalf of its institutional customers. The hedge fund employs long/short and long-only investing strategies focused on dividend-paying stocks. In addition, it invests in various businesses to generate cash flow, including business development companies, master limited partnerships, real estate investment trusts, and exceptional situations, including mergers and acquisitions, spin-offs, convertibles, preferreds, and high yield.
Callodine Capital Management’s portfolio had a value of $311.48 million at the end of the first quarter of 2022, up from $257.99 million in the fourth quarter of 2021. The most notable stocks held by the hedge fund in Q1 2022 included T-Mobile US, Inc. (NASDAQ:TMUS), KKR & Co. Inc. (NYSE:KKR), and Merck & Co., Inc. (NYSE:MRK).
Callodine Capital Management held 75,000 shares in T-Mobile US, Inc. (NASDAQ:TMUS), worth over $9.63 million. This represented 3.09% of its portfolio. On June 28, Scotiabank analyst Maher Yaghi initiated coverage of T-Mobile US, Inc. (NASDAQ:TMUS), rating the stock as Sector Perform and a price target of $153.
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The fund manager also had a substantial stake in KKR & Co. Inc. (NYSE:KKR). On May 19, Brian Bedell, an analyst at Deutsche Bank, maintained a Buy rating on KKR & Co. Inc. (NYSE:KKR) but simultaneously decreased his price objective to $79 from $81. According to a study by Bedell, investors should be aware that new buying opportunities emerged during the stock market decline in the brokerage, asset management, and exchange sectors.
Callodine Capital Management also had a $1.23 million stake in Merck & Co., Inc. (NYSE:MRK). On June 27, Cowen analyst Boris Peaker reiterated a Market Perform rating on Merck & Co., Inc. (NYSE:MRK), while increasing his price target from $95 to $102.
Our Methodology
With this economic outlook in mind, here is our list of top 10 stock picks of James Morrow’s Callodine Capital Management. We picked these stocks from the Q1 portfolio of Morrow’s hedge fund.
Top Stock Picks of James Morrow’s Callodine Capital Management
10. Barings BDC, Inc. (NYSE:BBDC)
Callodine Capital Management’s Stake Value: $11,245,000
Percentage of Callodine Capital Management’s Portfolio: 3.61%
Number of Hedge Fund Holders: 11
Barings BDC, Inc. (NYSE:BBDC) is a publicly listed, externally controlled investment firm. On May 5, Barings BDC, Inc. (NYSE:BBDC) announced a quarterly dividend of $0.24 per share, an increase of 4.3% over the previous payout of $0.23.
Barings BDC, Inc. (NYSE:BBDC) was in 11 hedge fund portfolios at the end of the first quarter of 2022, while there were 12 hedge funds in our database with Barings BDC, Inc. (NYSE:BBDC) positions at the end of the previous quarter.
Callodine Capital Management has been involved with Barings BDC, Inc. (NYSE:BBDC) stock since the second quarter of 2020 and had been one of the stock’s largest shareholders in Q1 2022. He added to the stake during Q1 2022 by purchasing 352,500 shares. The stock accounted for about 3.61% of Callodine Capital Management’s portfolio, as the hedge fund owned an $11.25 million stake in Barings BDC, Inc. (NYSE:BBDC).
Just like T-Mobile US, Inc. (NASDAQ:TMUS), KKR & Co. Inc. (NYSE:KKR), and Merck & Co., Inc. (NYSE:MRK), Barings BDC, Inc. (NYSE:BBDC) is also one of the top stock picks of James Morrow’s Callodine Capital Management.
9. Vistra Corp. (NYSE:VST)
Callodine Capital Management’s Stake Value: $11,276,000
Percentage of Callodine Capital Management’s Portfolio: 3.62%
Number of Hedge Fund Holders: 40
Vistra Corp. (NYSE:VST) is a Fortune 275 integrated electricity generating and retail corporation with its headquarters in Irving, Texas. Oaktree Capital Management is Vistra Corp. (NYSE:VST)’s largest shareholder, with shares worth $671.92 million. Overall, 40 out of the 912 hedge funds held stakes in Vistra Corp. (NYSE:VST) in the first quarter of 2022, worth $1.64 billion, compared to the same number of funds in the preceding quarter, holding bets in Vistra Corp. (NYSE:VST) worth $1.55 billion.
On June 22, PJM Interconnection held a capacity auction where Vistra Corp. (NYSE:VST) contracted about 6.9 GW of production at a total average clearance price of $37.20 per MW-day, netting $94 million for the 2023–24 scheduling year.
Morrow added 9% to Callodine Capital Management’s stake in Vistra Corp. (NYSE:VST) in Q1 after initiating the position during Q4 2020. In addition, he bought another 40,000 shares in the company to raise his hedge fund’s total position to nearly 485,000 shares.
8. Medical Properties Trust, Inc. (NYSE:MPW)
Callodine Capital Management’s Stake Value: $11,733,000
Percentage of Callodine Capital Management’s Portfolio: 3.76%
Number of Hedge Fund Holders: 16
Medical Properties Trust, Inc. (NYSE:MPW) is a self-advised real estate investment trust that invests in, buys, and develops net-leased healthcare facilities. Cardinal Capital, with approximately 5.14 million shares worth $108.75 million, was the largest shareholder of Medical Properties Trust, Inc. (NYSE:MPW) as of Q1 2022.
Callodine Capital Management also strengthened its position in Medical Properties Trust, Inc. (NYSE:MPW) by buying 190,000 additional shares in Q1 2022. This made its stake in Medical Properties Trust, Inc. (NYSE:MPW) equal 555,000 shares worth $11.73 million.
Michael Mueller, a JPMorgan analyst, downgraded Medical Properties Trust, Inc. (NYSE:MPW) on June 22 from Overweight to Neutral with a price objective of $18, down from $24. The expert believed that the current circumstances might make it more difficult to predict what would happen in the future.
Among the hedge funds tracked by Insider Monkey, 16 funds were bullish on Medical Properties Trust, Inc. (NYSE:MPW) at the end of March 2022, compared to 20 funds in the earlier quarter.
7. Altria Group, Inc. (NYSE:MO)
Callodine Capital Management’s Stake Value: $12,148,000
Percentage of Callodine Capital Management’s Portfolio: 3.9%
Number of Hedge Fund Holders: 47
Altria Group, Inc. (NYSE:MO) manufactures and markets cigarettes, tobacco, and associated tobacco products. Callodine Capital Management increased its hold in Altria Group, Inc. (NYSE:MO) by 86% in the first quarter, ending the period with 232,500 shares of the company.
On June 29, Barclays analyst Gaurav Jain downgraded Altria Group, Inc. (NYSE:MO) from Equal Weight to Underweight and cut the price target to $36 from $53. He anticipated that Altria Group, Inc. (NYSE:MO) would lower its fiscal 2022 earnings projection due to declining cigarette sales. Jain referred to the business as a “melting ice crystal”.
Fund managers added to their Altria Group, Inc. (NYSE:MO) holdings in the first quarter of 2022, as 47 out of the 912 funds tracked by Insider Monkey reported long positions in the company, up from 39 funds a quarter earlier. Among the hedge funds being tracked by Insider Monkey, GQG Partners was the leading shareholder of Altria Group, Inc. (NYSE:MO), with 18.30 million shares worth more than $956.22 million.
Broyhill Asset Management mentioned Altria Group, Inc. (NYSE:MO) in its Q2 2021 investor letter. Here is what the fund said:
“Altria (MO) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 20%. We shared our thoughts on these regulations during the quarter, which are available here.
MO Valuation. MO is up ~ 18% YTD (even accounting for the recent sell-off). We expect MO to generate close to $5 in annual FCF per share over the next few years, putting the stock at ~ 10x, which is less than half the market’s multiple today. Over the last decade, shares have traded at an average multiple of 15x and within a range of ~ 10x – 20x (+/-1 standard deviation). The stock yields 7.2% at the current price, close to a 6% premium to treasuries. Historically, shares have traded closer to a 3% premium to the 10Y, which would imply a ~ $75 share price.”
6. PennantPark Investment Corporation (NYSE:PNNT)
Callodine Capital Management’s Stake Value: $13,967,000
Percentage of Callodine Capital Management’s Portfolio: 4.48%
Number of Hedge Fund Holders: 13
PennantPark Investment Corporation (NYSE:PNNT) is a private equity fund that focuses on direct and mezzanine investments in middle-market companies. In addition to PennantPark Investment Corporation (NYSE:PNNT), stocks such as T-Mobile US, Inc. (NASDAQ:TMUS), KKR & Co. Inc. (NYSE:KKR), and Merck & Co., Inc. (NYSE:MRK) are attracting the attention of James Morrow’s Callodine Capital Management.
PennantPark Investment Corporation (NYSE:PNNT) experienced an increase in hedge fund interest in the first quarter of 2022. PennantPark Investment Corporation (NYSE:PNNT) was in 13 hedge fund portfolios at the end of the first quarter of 2022. There were 7 hedge funds in our database with PennantPark Investment Corporation (NYSE:PNNT) holdings at the end of the preceding quarter.
Almitas Capital was the leading shareholder of PennantPark Investment Corporation (NYSE:PNNT), with 2.07 million company shares worth over $16.08 million. Next on the list is Callodine Capital Management, which owned 1.80 million shares of PennantPark Investment Corporation (NYSE:PNNT), worth over $13.97 million.
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Disclosure: None. Top 10 Stock Picks of James Morrow’s Callodine Capital Management is originally published on Insider Monkey.
