Here's What This $8 Billion Contrarian Has Been Buying

Does this 6.1% dividend yield interest you? Or this 11.4% one?

Jan 31, 2014 at 11:07AM

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 Tocqueville Asset Management, a portfolio manager with a contrarian bent, believing that "the best investment results over time are achieved outside the mainstream consensus" and seeking "undervalued companies that possess long-term earnings power."

The company's reportable stock portfolio totaled $7.4 billion in value as of Dec. 31, 2013.

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

The biggest new holdings are Jabil Circuit and Xerium Technologies, Inc. Other new holdings of interest include real estate investment trust (REIT) Omega Healthcare Investors (NYSE:OHI). Omega Healthcare recently owned or held mortgages on 477 assisted living facilities, skilled nursing facilities, and other specialty hospitals, spanning 33 states. In a presentation (.pdf file) for investors in May, management noted the company's "consistent and stable" free cash flow and manageable debt levels, along with its geographic diversification. Omega's third quarter featured operating revenue and earnings per share both up 19%, and it reports its fourth quarter on February 3. With its current and forward P/E ratios near 23, Omega Healthcare's stock doesn't appear to be a screaming bargain, but it does offer a tempting 6.1% dividend yield. Still, analysts at Wells Fargo and UBS downgraded the stock earlier in January, citing factors such as valuation and credit risk.

Among holdings in which Tocqueville Asset Management increased its stake were Corning (NYSE:GLW) and Cree (NASDAQ:CREE). Corning's stock has surged more than 40% over the past year, and its dividend yields 2.2%. Bulls are very excited about a big partnership with Samsung and see much potential in Corning. Its Gorilla Glass is installed in more than 1 billion mobile devices, across some 500 product lines, and is expanding into the automotive and architectural markets. Corning's curved glass could prove useful to the solar energy industry, among others. Corning has been buying back billions of dollars' worth of shares, and it just reported its fourth quarter, featuring estimate-topping results -- though weakness in the LCD market has been holding it back some, as much of its business is tied to displays.

LED lighting specialist Cree (NASDAQ:CREE) popped recently after topping estimates with its second-quarter results. It sports a healthy balance sheet, too, with no debt and plenty of cash that gives it the ability to pounce on opportunities. Bulls like Cree's profit potential as the LED market heats up (and conventional light bulbs perish) -- it's expected by some to grow by about 34% annually over the next few years, eventually totaling nearly $100 billion. Cree's bulbs have received an Energy Star rating that will give them access to rebates from utility companies. The stock isn't cheap, though, with its P/E ratio topping 60.

Tocqueville Asset Management reduced its stake in lots of companies, including Annaly Capital Management (NYSE:NLY) and OPKO Health (NYSE:OPK). Annaly, a mortgage REIT, has seen its stock drop more than 20% over the past year, helping push its dividend yield recently at 11.4%. That dividend has been shrinking, though, and is vulnerable to rising interest rates. Analysts at Goldman Sachs slapped a "sell" rating on the stock in December, but some of our own analysts see the company as a better bet than many of its peers (and advise keeping a close eye on leverage ratios). Annaly Capital Management is moving more into commercial real estate, and in its last earnings report, management tempered expectations due to a shaky environment. Many are critical of Annaly's management structure and compensation.

OPKO Health has bulls hopeful about its Rayaldy drug, targeting thyroid disorder, chronic kidney disease, and vitamin D deficiency. It's also developing diagnostic tests for Alzheimer's disease and a bunch of cancers and has pharmaceutical, nutraceutical, and veterinary products on the market in Europe and Latin America. Its anti-nausea Rolapitant drug, licensed to Tesaro, is nearing the end of phase 3 trials. Still, while OPKO Health's top line is growing, OPKO's bottom line is red, and it's burning cash. Gaining FDA approvals will help boost investor confidence. As my colleague Brian Orelli has noted, OPKO Health has a lot going on, but for some, it might be too much.

Finally, Tocqueville's biggest closed positions included Franco-Nevada Corporation and Silver Wheaton, both of which are in the business of investing in gold and silver mining streams.

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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Selena Maranjianwhom you can follow on Twitter, owns  shares of Corning and Silver Wheaton. The Motley Fool recommends Goldman Sachs. It recommends and owns shares of Corning and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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