Here's What This "Market-Destroying" Investor Is Buying

Every quarter, many money managers have to disclose what they've bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.

Today, let's look at Joel Greenblatt's Gotham Capital. It's of great interest to many investors because Greenblatt is the author of the well-regarded and best-selling The Little Book That Beats the Market, and because of his system of seeking out companies with high returns on capital and hefty earnings yields. His "Magic Formula" has many fans. As my colleague Morgan Housel has noted:

The simple formula absolutely destroys market averages over time. Greenblatt backs this up with considerable statistical evidence.

The company's reportable stock portfolio totaled $1.5 billion in value as of September 30, 2012.

Interesting developments
So what does Gotham's latest quarterly 13F filing tell us? Here are a few interesting details:

The biggest new holdings are Herbalife (NYSE: HLF  ) and Goodyear Tire & Rubber (NYSE: GT  ) . Other new holdings of interest include Questcor (Nasdaq: QCOR  ) and Spectrum Pharmaceuticals (Nasdaq: SPPI  ) . Questcor is a pharmaceutical company that's enjoying solid sales of its multiple sclerosis drug Acthar, which represents a promising opportunity. Its shares were cut in half recently on news that Aetna would only cover Acthar for very limited uses, not seeing it as effective enough for broader coverage. Questcor says the Aetna news won't have "a material impact" on the stock, but investors are clearly spooked. Meanwhile, our analysts have found some interesting details in the company's SEC filings, and patient investors are enjoying its new dividend, which recently yielded 3.1%.

Spectrum is an appealing biotech company, because it actually has some products on the market and not just in development. Its pipeline is promising, and many of its financial numbers are exciting, such as its strong revenue, low debt, and strong margins. Despite all that, it's heavily shorted, due, in part, to worries over competition.

Among the largest positions that Gotham increased its stake in were Cisco Systems (Nasdaq: CSCO  ) and Dolby Laboratories (NYSE: DLB  ) . It also boosted its stake in Advanced Micro Devices (NYSE: AMD  ) . Advanced Micro is a semiconductor company that has long been battling Intel (Nasdaq: INTC  ) . It recently announced plans to lay off 15% of its workforce, and many of its financial stats are not encouraging. Still, it may turn itself around and, in the meantime, some speculate that it could end up being acquired. (Buyout rumors are generally not enough to base investment decisions on, though.)

Gotham reduced its stake in lots of companies, including United Therapeutics (Nasdaq: UTHR  ) , Myriad Genetics (Nasdaq: MYGN  ) , and Sirius XM Radio (Nasdaq: SIRI  ) . Some worry that streaming music competition will sink Sirius, but it has been growing its subscribership and monthly price despite that. (A recent smart move that could boost its subscriber rolls is its temporary activation of dormant accounts.) Liberty Media has been approaching majority control of the company, and CEO Mel Karmazin is stepping down in February. Meanwhile, insiders seem bullish, as they've grabbed lots of shares lately.

Finally, Gotham's biggest closed positions included Wells Fargo (NYSE: WFC  ) and Whirlpool (NYSE: WHR  ) . Other closed positions of interest include Nuance Communications (Nasdaq: NUAN  ) , which has made a lot of money supplying its speech-recognition software to Apple's  (Nasdaq: AAPL  ) and others' devices. Bulls are hopeful about its new business applications, such as ones for the medical field, and voice biometric technology that can identify customers without passwords or questioning. Nuance recently reported record sales of its Dragon Medical offerings. Its move into the auto industry has been a success, too, with its technology now in some 70 million vehicles. In its last quarter, revenue surged more than 25%, but that missed analyst estimates, disappointing some.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. Therefore, 13-F forms can be great places to find intriguing candidates for our portfolios.


Read/Post Comments (2) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2012, at 11:21 AM, rav55 wrote:

    Winning the designs for ALL three Games consoles, WiiU, XBOX and PS4 is worth at least $0.6 billion per year. All three game consoles historically sold 4-7 million units per year during the product cycle. For a total of about 230 million units for a 6 year history. Since game consoles are not upgraded with processor refreshes the process matures and the yields and profits increase during the lifespan of the process.

    This will be huge for AMD.

  • Report this Comment On November 24, 2012, at 3:02 PM, TEBuddy wrote:

    So we have large insider buy at AMD management and large institutional buys for AMD. Nothing has really changed since all of the positive reviews of AMD in August, except the amount of pesimistic articles out there. Everyone knew earnings would be low and they had these expenses from GF to take care of this year.

    It also seems leaked roadmaps were faked to make AMD seem worse. The consoles are getting Kaveri Steamroller APUs and AMD GPUs, so its a win for the GPU and CPU side of the house. And this also means Steamroller in APUs is not delayed to 2014 or cancelled as was rumored by many sites. AMD is betting it on Heterogeneous computing and Kaveri APU is key to this, a 1Q2013 release will be huge. This is because it also gets AMD's efficiency per clock close to Intel's, so frequencies and core count will be comparable.

Add your comment.

DocumentId: 2125261, ~/Articles/ArticleHandler.aspx, 4/23/2014 5:30:40 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement