Eric Mindich founded Eton Park Capital in 2004 after 15 years at Goldman Sachs; during his time there, he had become the youngest partner in Goldman’s history. We track Eton Park’s quarterly 13F filings alongside those of other hedge funds and other notable investors as part of our work developing investing strategies; we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year on average (read more about our small cap strategy). We think that this is because small caps receive less attention from large institutional investors, and are so more likely to be mispriced. We can also review small cap picks from individual funds such as Eton Park- not so that they can be blindly followed, but to identify potential ideas for further research. Here are five of Eton Park’s small cap picks from the end of December (or see the full list of stocks the fund reported owning)
Mindich and his team reported a position of 1.8 million shares in Huntington Ingalls Industries Inc (NYSE:HII) at the end of the fourth quarter. Huntington Ingalls is a $2.5 billion market cap company which builds and repairs ships for the Navy and Coast Guard. Earnings have been down recently, but Wall Street analysts expect the business to recover; in fact, the forward P/E is only 10, though we would be concerned about potential cuts to defense spending. Alan Fournier’s Pennant Capital Management owned 4.4 million shares of Huntington Ingalls according to that fund’s own 13F filing (research more stocks Pennant owns).
Visteon Corp (NYSE:VC) was another of Mindich’s small cap picks, as he increased the size of his position to nearly 1 million shares between October and December. The auto parts company actually looks a bit expensive in terms of its trailing earnings, though the sell-side is expecting considerable improvements over the next couple years and so the forward P/E is 11. It might not be as attractive as other auto parts manufacturers or other auto related companies. Billionaire Steve Cohen’s SAC Capital Advisors disclosed ownership of 2.5 million shares as of the beginning of January (check out Cohen’s stock picks).
The fund reduced its holdings of Cytec Industries Inc (NYSE:CYT) by 32% to about 770,000 shares. Cytec Industries Inc (NYSE:CYT), a $3.3 billion market cap specialty chemicals company, reported double-digit growth rates on both top and bottom lines in its last quarterly report compared to the fourth quarter of 2011. Analysts are expecting high growth to continue for at least some time, and as a result the trailing and forward P/Es are 18 and 12 respectively. Note that the market seems to expect high growth to be short lived. John Burbank’s Passport Capital was another major shareholder in Cytec Industries Inc (NYSE:CYT) at the end of December (see more stocks Burbank likes).
The filing showed Eton Park initiating a position of about 590,000 shares in Gardner Denver, Inc. (NYSE:GDI), a manufacturer of industrial machinery and engineering products. Revenue decreased by 4% in its most recent quarter, contributing to an 11% decline in earnings. While the stock’s valuation is at least close to value territory with a trailing P/E of 14, then, we would avoid it at least until the company can actually deliver growth in net income. Adage Capital Management, managed by Phil Gross and Robert Atchinson, nearly tripled their stake in Gardner Denver, Inc. (NYSE:GDI) to 1.4 million shares.
Disclosure: I own no shares of any stocks mentioned in this article.
