One of the great maxims of traders and Wall Street pros is to follow the "smart money."
I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.
Next up: KKR Financial (NYSE: KFN ) . Are institutions bullish or bearish when it comes to this asset manager?
|CAPS rating (out of 5)||***|
|Bullish pitches||36 out of 38|
|Highest rated peers||Primus Guaranty, NYSE Euronext, Marlin Business Services|
Data current as of Dec. 27.
Fools can't make up their minds about KKR Financial, but Big Money investors harbor no doubts about the underlying strength of the company's portfolio and liquidity.
This month, hedge fund manager Leon Cooperman added 1.1 million more shares to his already considerable position in KKR. (Funds he controls own 10.17% of the company as of this writing, according to Capital IQ, a division of Standard & Poor's.)
Cooperman probably likes KKR's dividend, which yields 5.1% as of this writing. Putting that in perspective, Cooperman's 17,937,227 shares are on track to pay him and his various trusts $8.6 million in dividends this year alone. Talk about impressive -- and yet the promise of cash is only one reason to buy at current levels. Value is another.
"KKR Financial Holdings ought to benefit from the super favorable yield curve and the super favorable spread between lower risk securities and higher risk securities [and] loans. Qualifies for my 12 best low price value stocks screen, which outperforms most in up markets. I am bullish. Selling for 5 [times] forward earnings. Awesome dividend yield," wrote All-Star Fool mrindependent in October.
Institutional ownership history
|Thornburg Investment Management||6,834,259||15,095,109||6,698,800||9,076,862|
|Cobalt Capital Management||100,000||-||6,434,704||7,098,455|
|Legg Mason Capital Management||5,972||-||6,199,100||6,266,693|
|TOP 25 TOTAL||29,522,882||59,500,220||74,125,811||77,719,918|
Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.
Big Money investors would appear to agree. They've shopped for KKR shares since 2008. Among the top five, only Fidelity has taken some profits. T. Rowe Price added another 260,000 shares to its position in the September quarter.
What's driving the enthusiasm? That's hard to say, but the implications of a possible $18.50-per-share bid for Del Monte Foods (NYSE: DLM ) could play a part. Valuation probably also factors into the equation.
Competitor and peer checkup
|Apollo Investment (Nasdaq: AINV )||58.95%||0.19%|
|BlackRock (NYSE: BLK )||86.00%||2.17%|
|Capital Trust (NYSE: CT )||17.57%||3.32%|
|Prospect Capital (Nasdaq: PSEC )||28.08%||1.50%|
Source: Capital IQ, a division of Standard & Poor's. Data current as of Dec. 27.
Regardless, it's the data from this final table that convinces me that KKR Financial is a buy. Institutions own less than 50% of the stock, giving Big Money buyers plenty of room to purchase shares and push the price higher. This same dynamic has helped the Scrooge portfolio beat the market by roughly 18 points annually over the past six years.
At the same time, insiders have bet alongside Cooperman. For example, Scott Nuttall, a member of KKR's investment committee, still owns more than 1.6% of the company's shares outstanding. I think both men are right about KKR Financial, which is why I've rated the stock to outperform in my CAPS portfolio.
Think I'm right? Wrong? Let me know you would rate KKR Financial using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.
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