Alden Global Capital, currently valued with an equity portfolio of $567 million, is run by Randall Smith, who is politely called a recluse among notoriously guarded hedge fund managers. Little is known about Smith – no one even knows his actual age or where he got his start – but he has been called the “pioneer of vulture investing.” While that may not be much of a term of endearment, Smith has endured by being diversified among the major sectors such as industrial goods, technology, financial stocks and consumer goods.
His four biggest multi-quarter bets—meaning he has held these stocks for more than just one three-month period—are a cross section of his overall equity portfolio. Because hedge funds’ top picks have market-beating potential, let’s take a closer look at these companies in Alden’s equity portfolio in particular.
Numero uno
With 5.3 million shares, Yahoo! Inc. (NASDAQ:YHOO) is in the number one position. The stock hit a new 52-week high on April 15th, but has drifted lower following disappointing Q1 earnings. First quarter earnings aside, there are still plenty of reasons why Yahoo! Inc. (NASDAQ:YHOO) will remain one of the stronger stocks in the tech sector. Recent partnerships with Dropbox, Alibaba (which is expected to go public at $80 billion) and Flickr are providing Yahoo! Inc. (NASDAQ:YHOO) with diversity that goes well beyond its core business of search engines and email. Not to mention that the company has great metrics with price/book of 1.8x versus an industry average of 4x and a trailing P/E ratio of 7.2x versus 25x for Google Inc (NASDAQ:GOOG).
The best of the rest
At number two is Bank of America Corp (NYSE:BAC) at 12.8% of the Alden Global portfolio. B of A stock fell nearly 5% in one day on disappointing Q1 earnings and a settlement for three mortgage-backed securities lawsuits tied to its Countrywide unit that will cost B of A $500 million. Another drag on B of A and the rest of the banking sector is potential legislation that could require banks to keep 10% of their assets in cash, 15% for banks with assets more than $400 million, also known as Brown-Vitter, eponymously named for the two Senators sponsoring the bill. On the bright side, the Merrill Lynch unit of the company, which was acquired by B of A during the financial meltdown of 2009, reported a 7% gain in earnings for the Q1 from the same period last year. Nonetheless, despite these setbacks, B of A shares are up 3.7% from the start of the year.
Third on the list of Alden’s multi-quarter holdings is Visteon Corporation (NYSE:VC), which supplies climate, electronics, interiors and lighting systems to global automotive equipment manufacturers. Visteon had an 8% decline in revenue for the Q4 of 2012, but was able to increase net income by 25% thanks to much leaner operations (SGA expenses were down 4% and COGS was down 9%). Recently, Visteon Corporation (NYSE:VC) was awarded a development and production program for its latest vehicle infotainment system by a major European car manufacturer. In light of this recent collaboration, Visteon’s audio infotainment segment is expected to grow at an annual rate of 12% over the next five years. Visteon Corporation (NYSE:VC) shares hit a new 52-week high of $61.50 and are up 16% from a year ago.
Last but not least is Louisiana-Pacific Corporation (NYSE:LPX) in which Alden is the number three holder of stock with 3.28 million shares; see the entire hedge fund industry’s interest. As a manufacturer of building products, Louisiana-Pacific Corporation (NYSE:LPX) has been underpinned by demand for lumber and building material from foreign buyers. And although demand is still below historic levels, industry experts expect that the consumption of lumber should increase 10-15% over the next three years as the housing market enters a “long, upward cycle”. For the most recent quarter reported, Louisiana-Pacific Corporation (NYSE:LPX) had a very strong earnings report as net income improved from -$181 million to +$29 million. As a result, EPS moved into positive territory, $0.20, from a $1.36 loss Q3 of 2012. LPX is up 124% from a year ago.
Final thoughts
Although the banking stocks could hinder the performance of the portfolio for the Q2 of 2013, there are enough standouts of the top four multi-quarter bets to balance out any short-term weaknesses in certain sectors likely to be undermined by sluggish economic data and weak earnings. The portfolio is evenly balanced among all sectors to provide cushioning in the event that certain sectors continue to underperform.
Disclosure: none
