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 investing giant Adage Capital Management, which is one of the biggest hedge fund companies around, with a reportable stock portfolio totaling more than $32.4 billion as of June 30, 2013. It was founded by Phillip Gross and Robert Atchinson, and it invests money for university endowments and charitable foundations, among others. As of 2011, the team had outperformed the S&P 500 by 3 percentage points annually, on average, since inception in 2001. So far this year, it has added a solid $4 billion in assets.
So what does Adage's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are Morgan Stanley and Textron. Other new holdings of interest include InvenSense (NYSE: INVN ) , a leader in motion-sensor technology supplied to millions of smartphones and tablets. Its last quarter featured revenue up 43% and the CEO noting that "customer design activity and confirmed design wins at customers has never been stronger." Better still, he expects the good times to keep on rolling in the coming quarter. Bulls like its innovation and analysts such as those at Needham & Co. have recently rated the stock a buy. Still, some investors see it as a bit pricey at recent levels and many have shorted it. Inclusion in Apple devices will be a big win for the company, but its wares don't appear to be in the new iPhone 5s.
Among holdings in which Adage Capital increased its stake were Kodiak Oil & Gas (UNKNOWN: KOG.DL ) and Frontier Communications (NASDAQ: FTR ) . Kodiak recently bought 42,000 acres in the productive Bakken region, upping its assets there by 27%, adding thousands of new barrels of oil to its production levels, and positioning itself for continued rapid growth. The company's stock is near a 52-week high, but with its forward P/E near 11, it seems to have more room to grow. Bears worry it might be too focused on the Bakken and not sufficiently diversified, and they don't like its debt, but bulls like its focus on efficiency and growth, and how it has invested in its future.
Frontier Communications is saddled with considerable debt, but is still yielding a whopping 9.6%. Most of its debt isn't due for another year or two, though, so it's focusing on investing in growth right now, and is aiming to maintain its dividend, which has shrunk in recent years. The company is shifting its focus from landline operations toward higher-margin businesses such as broadband and serving business customers. Its stock has been heavily shorted, with bears worrying about the sustainability of the dividend. Bulls like its strong free cash flow, which has facilitated its success in paying down debt, and they see it as undervalued. At a Goldman Sachs conference, Frontier's CEO noted a trajectory of improving revenue, with growing data revenue making up for lost voice revenue.
Adage Capital reduced its stake in many companies, including PotashCorp (NYSE: POT ) and Micron Technology (NASDAQ: MU ) . Fertilizer giant Potash yields 4.3% and should be of interest to those who see a growing global need for food. (Its dividend has been hiked 25% this year and some 700% over the past few years.) Bulls like its low-cost structure and solid profit margins, and even see its ultimate success as almost inevitable. Still, it's vulnerable to fertilizer prices and to the state of developing economies, such as China, where growth has slowed, and India, where there has reportedly been a potash oversupply. The company carries significant debt, , but it's also generating more than $1 billion in free cash flow annually.
Memory giant Micron has been successfully adapting to a changing market. Its acquisition of Japanese manufacturer Elpida has boosted its capacity, its pricing power, and its relationship with Apple. Micron is downsizing its workforce by about 5%, in part due to the Elpida purchase, and bulls expect its top and bottom lines to improve. Bears haven't liked recent net losses and shrinking margins. It faces able competition, too, but with its forward P/E near 10, Micron seems appealingly priced. A recent short-term boon for Micron is a fire at a competitor's plant, which has sent some chip prices to a two-year high.
Finally, Adage's biggest closed positions included Heinz and Parker-Hannafin. Other closed positions of interest include Atmel and Cliffs Natural Resources.
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. 13F forms can be great places to find intriguing candidates for our portfolios.
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