Every quarter, many money managers have to disclose what they've bought and sold via 13F filings. They're also often interviewed, which offers peeks into their thinking and recent actions. Their latest moves can shine a bright light on smart stock picks.
Today let's look at Kynikos Associates, founded in 1985 by investing giant Jim Chanos, which sported a reportable stock portfolio of $118 million as of March 31, 2012. Chanos is known for being an early spotter of trouble at Enron, betting against it and profiting while others got crushed.
The company's top three holdings, representing 19% of total assets, were VMWare, the SPDR S&P Midcap 400 ETF, and Amazon.com.
So what does Kynikos Associates' latest quarterly 13F filing tell us? Here are a few interesting details:
First off, there were no new holdings. Kynikos made some bullish calls on the overall stock market, increasing its holdings of some popular ETF tracking the broader S&P 500 and MSCI emerging market indexes.
Kynikos Associates reduced its stake in several companies, including Rackspace Hosting (NYSE: RAX ) , a cloud-computing company offering enterprise hosting services. It's growing its revenue and earnings at an accelerating rate, but it also faces competition from companies such as Amazon, which has recently taken steps to beef up its customer service to compete with Rackspace's famous "fanatical" service. Others simply worry about its valuation, thinking it too steep.
Kynikos also cut its stake in Apache (NYSE: APA ) . The company has been performing well despite the low price of natural gas these days, partly due to 38% of its natural gas production happening abroad, where prices are significantly higher than in North America. Investors are excited about its increased production and its promising acquisitions.
Finally, Kynikos Associates unloaded several companies, such as American Capital Agency (Nasdaq: AGNC ) and Invesco Mortgage Capital (NYSE: IVR ) . American Capital has been growing its revenue and earnings at breakneck speed, more than doubling its revenue annually, on average, over the past three years. The mortgage REIT has been benefiting from very low interest rates, but those will inevitably go up one day, though very possibly not for a few years. Lower-than-expected prepayments on mortgages are also helping. Still, refinancing has slowed, and thanks to the slumped economy and tougher lending standards, mortgage applications are down, too. These are not auspicious factors for the company, which recently yielded nearly 15%.
Invesco, meanwhile, recently yielded 14%. Some of its peers are funding dividends partly by issuing more shares, which dilutes shareholder value. Invesco, though, seems to be holding its share count relatively flat, which is good. It recently posted a rather strong quarterly report, boosting its net income, but its debt-to-equity ratio has risen sharply over the past year.
Chanos has shed some light on his vaunted shorting activity in recent interviews. For example, two stocks he's bearish on are Coinstar (Nasdaq: CSTR ) and Dell. His reasoning centers on shrinking DVD sales amid the increased use of video streaming, and shrinking sales of PCs due to the growth of tablets and smartphones. Supporters of these companies, though would point to Coinstar's ability to add streaming to its mix, as well as Dell's growing focus on serving businesses.
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, and 13-F forms can be great places to find intriguing candidates for our portfolios.
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