Top Stock Picks of Multi-Strategy Fund Beach Point Capital Management

The Standard and Poor’s 500 Index lost 6.44% during the third-quarter, a turbulent three-month period that practically erased all year-to-date gains generated by the major U.S. stock indexes. As many anticipated, the major events that occurred during the latest quarter (which actually triggered the equities sell-off) did not result in a long-term bear market or global recession. On the contrary, the U.S. economy has proved to be relatively strong and well-prepared for tackling a potential increase in interest rates despite facing numerous peripheral headwinds. The wild third quarter also forced most hedge funds and other money managers to adjust their equity holdings, so it is worthwhile to take a look at the stocks these investors abandoned or acquired during the quarter. Beach Point Capital Management, a Los Angeles-based multi-strategy hedge fund founded by Carl Goldsmith and Scott Klein, recently disclosed its equity holdings by filing the 13F form with the U.S. Securities and Exchange Commission. The value-oriented investment firm generally seeks for complex and misunderstood opportunities, and prizes itself as a firm that has a consistent investment process and an “enviable track record”. So let’s proceed with the discussion of its five largest equity holdings at the end of the third quarter and the performance these five stocks over the past few months.

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We don’t just track the latest moves of hedge funds. We are, in fact, more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds we track. We gather and share this information based on 16 years of research which showed that these 15 most popular small-cap picks have a great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month in backtests, and easily beating the most popular large-cap picks of funds, which nonetheless get the majority of their collective capital. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic only the very best ideas of the best fund managers on your own? Since the beginning of forward testing in August 2012, the Insider Monkey small-cap strategy has outperformed the market every year, returning 102%, nearly 2.1 times greater returns than the S&P 500 during the same period (see more details).

#5 MGM Resorts International (NYSE:MGM)

Shares Owned by Beach Point Capital Management (as of September 30): 1.32 million shares

Value of Holding (as of September 30): $24.35 million

Beach Point Capital Management upped its position in MGM Resorts International (NYSE:MGM) by 517,622 shares during the latest quarter, which marks an increase of 64% quarter-on-quarter. The shares of the casino resorts operator are up nearly 9% this year despite facing a challenging business environment in Macau. The company’s gross gaming revenues in the Macau market dropped 36% in the nine months of this year compared to the same period last year. The worsening economic conditions in China and certain policy initiatives implemented by the Chinese government have impacted the casino industry in the Macau region. However, MGM’s management believes in the long-term prospects of its operations in the Macau market, which is anticipated to strengthen as a result of infrastructure improvements and other developments. Daniel S. Och’s OZ Management owned 11.23 million shares in MGM Resorts International (NYSE:MGM) at the end of June.

#4 Liberty Global plc (NASDAQ:LBTYA)

Shares Owned by Beach Point Capital Management (as of September 30): 603,390 Class A shares

Value of Holding (as of September 30): $25.91 million

The Los Angeles-based investment firm lifted its stake in Liberty Global plc (NASDAQ:LBTYA) by 11,250 Class A ordinary shares during the September quarter, which accounted for 7.03% of the firm’s portfolio on September 30. The international cable company has seen its stock lose 7% thus far in 2015, although the company’s European cable business has been strengthening lately. Liberty Global reported third-quarter revenue of $4.60 billion, which was up 2.2% year-on-year. Analysts had previously anticipated that the company’s third-quarter revenue would reach $4.47 billion. Liberty Global’s customer base in Europe expanded to 25.8 million in the third quarter, thanks to the strong customer growth in the United Kingdom and Germany. First Eagle Investment Management, founded by Jean-Marie Eveillard, reported owning 1.08 million Class A shares in Liberty Global plc (NASDAQ:LBTYA) through the latest round of 13F filings.

#3 InterXion Holding NV (NYSE:INXN)

Shares Owned by Beach Point Capital Management (as of September 30): 1.09 million shares

Value of Holding (as of September 30): $29.43 million

Beach Point Capital was very bullish on InterXion Holding NV (NYSE:INXN) during the September quarter, increasing its exposure to the European provider of carrier and cloud-neutral colocation data centre services by 564,637 shares. InterXion’s stock has gained almost 10% since the beginning of the year, but several financial services firms reckon that the stock can go even higher. Earlier this month, Citigroup Inc. (NYSE:C) raised its rating on InterXion to ‘Buy’ from ‘Neutral’, maintaining its price target of $36. Similarly, Canaccord Genuity reiterated its ‘Buy’ rating on the stock and raised its price target to $34 from $33, which yields an upside of 13%. These upgrades come after the company reported third-quarter earnings that beat analysts’ expectations. Ricky Sandler’s Eminence Capital was the largest equity holder of InterXion Holding NV (NYSE:INXN) at the end of the second quarter, holding 5.27 million shares.

#2 Time Warner Cable Inc. (NYSE:TWC)

Shares Owned by Beach Point Capital Management (as of September 30): 190,442 shares

Value of Holding (as of September 30): $34.16 million

The multi-strategy investment firm cut its holdings in Time Warner Cable Inc. (NYSE:TWC) by 194,097 shares during the third quarter, remaining with 190,442 shares. Just recently, Charter Communications Inc. (NASDAQ:CHTR) revealed that its acquisition of Time Warner Cable is anticipated to be completed in the first quarter of 2016. The deal that is set to create the leading broadband services and technology company is subject to meticulous regulatory scrutiny and is awaiting clearance from the U.S. Department of Justice and the Federal Communications Commission (FCC). The $78.7 billion cash-and-stock deal had been previously anticipated to close by the end of the year. Paulson & Co, founded by John Paulson, held a 8.12 million-share stake in Time Warner Cable Inc. (NYSE:TWC) at the end of the second quarter.

#1 Sanderson Farms Inc. (NASDAQ:SAFM)

Shares Owned by Beach Point Capital Management (as of September 30): 533,466 shares

Value of Holding (as of September 30): $36.58 million

Sanderson Farms Inc. (NASDAQ:SAFM) represents the largest equity holding of Beach Point Capital as of September 30, representing 9.92% of the value of the firm’s portfolio. The Los Angeles-based investment firm enlarged his position in the integrated poultry processing company by 12,838 shares during the September quarter. At the end of September, Sanderson Farms announced a recall of more than a half million pounds of chicken products produced at its plant in Mississippi. A sample of these products was found to contain metal, but none of the products were shipped to grocery stores, according to a recent statement released by the company. Meanwhile, the shares of Sanderson Farms are 16% in the red year-to-date and are trading at cheap trailing P/E ratio of only 5.68, which compared with a ratio of 23.41 for the S&P 500 Index. Royce & Associates, founded by Chuck Royce, owned a 1.12 million-share stake in Sanderson Farms Inc. (NASDAQ:SAFM) on June 30.

Disclosure: None