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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. Because his system of seeking out companies with high returns on capital and hefty earnings yields is easy to understand and has been successful, 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 $1.4 billion in value as of June 30, 2012.
So what does Gotham's latest quarterly 13F filing tell us? Here are a few interesting details:
New holdings include gadgetry accessories specialist ZAGG (Nasdaq: ZAGG ) , which is down roughly 50% over the past year. It has both topped analyst estimates repeatedly and also racked up a hefty short interest, as many investors worry about the sustainability of its success. Competition may loom, and its CEO is departing, but the company has got some solid distribution channels in place, in Verizon stores and at Wal-Mart.
Among holdings in which Gotham increased its stake was drilling-services giant Halliburton (NYSE: HAL ) . Its stock is down about 13% over the past year, in part due to investors worrying that the glut of natural gas will reduce drilling operations. On the other hand, though, the company's expertise in mature fields, unconventional markets, and deep drilling are pluses.
Gotham reduced its stake in lots of companies, including Latin American telecom provider NII Holdings (Nasdaq: NIHD ) . Revenue has been flat lately, but earnings have dropped as the company invests in its network -- though even there it's a bit behind the times, offering 3G technology in a world increasingly interested in 4G. Revenue per user has dropped, and currency fluctuations have also depressed results. Meanwhile, Standard & Poor's has downgraded its debt rating on the company.
Finally, Gotham unloaded several companies, such as rural telecom specialist Frontier Communications (Nasdaq: FTR ) and oil and gas concern Ivanhoe Energy (Nasdaq: IVAN ) . Frontier acquired much of Verizon's rural business, but it's still fighting the spread of smartphones. It also took on a lot of debt with that acquisition, and its massive dividend seems threatened, as it's paying out more than it's generating in free cash flow.
Ivanhoe's second-quarter report featured growing oil revenue and increased capital investments, but widening net losses. One of its priority businesses is converting heavy oil into light oil. It sports more debt than cash, and its cash from operations has been negative in recent years.
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.
Not everyone's convinced that Frontier Communications can't turn things around. Find out what analyst Dan Caplinger thinks in his premium report on the company.