William Martin’s Raging Capital Management has recently filled a Schedule 13D form regarding MRV Communications Inc. (NASDAQ:MRVC). The hedge fund firm disclosed owning 2.14 million shares in the California-based communications equipment and services company, which represent 30.6% of the company’s outstanding common stock. The disclosure reveals that Raging Capital Management has acquired 601,200 shares since the most recent 13F filing submitted with the SEC for the reporting period of March 31. As stated by the 13D filing, the aggregate purchase price of all the shares currently owned by the fund amounts to $37.70 million, including brokerage fees. The current market value of the stake is just over $25.62 million, meaning the investment has been a rather unprofitable one thus far for Martin.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activity. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 85 percentage points since the end of August 2012. These stocks returned a cumulative of 145% vs. less than 60% for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
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Raging Capital Management is a New Jersey-based long/short equity hedge fund firm founded by William Charles Martin in April 2006. Martin currently serves as the Chairman, Chief Investment Officer, and Managing Member at the investment firm and is backed by an experienced investment team that has expertise across a range of disciplines. He is a very experienced investor, entrepreneur, and public company director with a sound track record. Martin previously established a few financial information and internet media companies during his career as an entrepreneur, including Raging Bull in 1997. Therefore, it is highly likely that the aforementioned stock pick, MRV Communications, represents a great buying opportunity considering Martin’s expertise in the industry MRV is operating in. Martin’s track record as an investor has also been good, as his hedge fund firm has delivered an annualized returns of 25% since its inception. According to the most recent 13F filing, Raging Capital Management’s public equity portfolio is worth $745.13 million as of March 31. Besides discussing William Martin’s recent move in MRV Communications Inc. (NASDAQ:MRVC), we’ll also cover three of his other top stock picks, which include the following companies: Vitesse Semiconductor Corp. (NASDAQ:VTSS), Range Resources Corporation (NYSE:RRC) and Ply Gem Holdings Inc (NYSE:PGEM).
MRV Communications Inc. (NASDAQ:MRVC) is a global supplier of innovative and optical solutions that power the network integration services for leading communications service providers. The company has primarily focused on its Network Equipment business, as it has seen multiple growth opportunities along its way. MRV Communications has developed a few products intended to meet the fast-growing demand for cloud, mobility, and video services. Particularly, MRV’s OptiDriver platform provides adaptable, efficient support for high-capacity business and data center connectivity and has attracted quite a lot of attention lately, with its customers increasing to 59 as stated by the company’s first quarter financial report. Additionally, the OptiDriver platform has been gaining traction lately by attracting a new client under its wings. On June 23, MRV Communication announced that T-Mobile Czech Republic, which is one of the largest package delivery companies in the world and a leading global provider of specialized transportation and logistics services, is adopting MRV’s OptiDriver and Pro-Vision platforms to deliver 100G high-capacity bandwidth for interconnect services to the corporate headquarters, data center and branch locations of this firm. This clearly indicates that MRV’s platforms and its innovative and optical solutions are trustworthy, while a number of worldwide companies heavily rely on MRV’s expertise in running their daily operations. Even more to that, the OptiDriver optical transport platform has been recognized for innovation, as it was named the 2015 SDN Excellence Award winner, presented by INTERNET TELEPHONY magazine and SDN Zone.
Moving on to MRV’s financial performance during its first quarter of the year, we can affirm that the company has achieved significantly improved financial results. MRV reported revenues of $38.8 million, compared to the $42.3 million figure reported during the first quarter of 2014. The company managed to achieve an increase in its consolidated gross margins, increasing to 35.8% from 31.3% over the previous year. This increase was achieved thanks to the higher gross margins in its Network Equipment business, which we mentioned above. The segment had gross margins of 52.0% for the most recent quarter. Furthermore, the GAAP net loss of the company was $0.15 per share, compared to the loss of $0.58 reported in the first quarter of the previous year. In the meantime, the non-GAAP net loss reached a figure of $0.07 per share, compared to $0.47 per share a year ago. To conclude with, as a result of the high-growth of its Network Equipment Business, MRV Communication has experienced strong financial performance, which is expected to continue strengthening in the upcoming months. It is also worth mentioning that the shares of MRV have increased by nearly 21% year-to-date thanks to an increase of over 25% during the previous week, as the company may finally be achieving the promise Martin saw in it last year when he opened his position. Jim Simons’ Renaissance Technologies held the next largest position in MRV of the funds we track, though significantly smaller at just 18,300 shares.
Let’s briefly go through William Martin’s three other top stock picks now. Raging Capital Management held its position in Vitesse Semiconductor Corp. (NASDAQ:VTSS) unchanged at 14.32 million shares worth $76.05 million as of March 31. At the end of April, Microsemi Corporation and Vitesse Semiconductor successfully merged, completing Microsemi’s acquisition of Vitesse. On April 28, Vitesse notified the NASDAQ of its intent to remove its shares from listing. Therefore, it seems that William Martin has gained substantially on his investment in Vitesse, by receiving $5.28 per share upon the completion of the merger.
Moreover, Martin’s firm has taken a long position in Range Resources Corporation (NYSE:RRC) of 1.28 million shares, which are valued at $66.46 million. The shares of the company have dropped 7% since the beginning of the year and are now trading at nearly $50 per share. Despite the fact that the Texas-based company has been experiencing a few problems lately, a potential recovery of gas prices could result in a turnaround of the company. Within our database, John Scully’s SPO Advisory Corp represents the largest investor in Range Resources Corporation (NYSE:RRC) with 5.39 million shares.
Lastly, Raging Capital Management decreased its equity stake in Ply Gem Holdings Inc (NYSE:PGEM) by 21,536 shares, ending the first quarter with 3.57 million shares valued at $46.40 million. Although the shares of Ply Gem have decreased by nearly 12% year-to-date, the company is expected to achieve high organic growth besides its recent acquisition of Simonton Windows that will boost the momentum of sales. Thomas Claugus’ GMT Capital is the second-largest shareholder in Ply Gem Holdings Inc (NYSE:PGEM), with 1.25 million shares, right behind Martin’s fund.
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