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 Farallon Capital Management, which was founded by Thomas Steyer in 1986 and employs a bottom-up fundamental investing strategy.
The company's reportable stock portfolio totaled $3.9 billion in value as of June 30, 2012.
Interesting developments
So what does Farallon's latest quarterly 13F filing tell us? Here are a few interesting details.
New holdings include rare-earth-mineral specialist Molycorp (NYSE: MCP), which has plunged more than 70% over the past year, due mostly to sharply lower prices for rare-earth minerals. It may do well in the long run when prices rise again, but in the short term, further declines are not out of the question. Gabelli & Co. recently upgraded the stock's rating, but its appeal is not overwhelming yet, especially since it has been diluting its stock with substantial additional share issuances. Part of the cash generated by the dilution is being used for investments, some of which may expand Molycorp's activities in China.
Among holdings in which Farallon increased its stake were Westport Innovations (Nasdaq: WPRT) and Ultra Petroleum (NYSE: UPL). Westport Innovations is a designer of low-emissions engines that run on natural gas, among other things. Its future is bright as we seek ways to depend less on oil and embrace the current low natural-gas prices. Some think prices may stay low, benefiting Westport. New government mandates for vehicle makers to increase their average fuel efficiency could also boost Westport. In the meantime, though, it remains unprofitable.
Oil and gas company Ultra Petroleum has been a mixed bag for investors, averaging 19% annual gains over the past decade but 16% annual losses over the past five years. Like its peers, it has been whacked by the oversupply and low price of natural gas, and it has cut back on production. But demand should eventually pick up, and it should do well at that point, as it's a low-cost producer. Bears are steering clear, though, worried about steep debt and expecting gas prices to stay low for a long time.
Farallon reduced its stake in several companies, including Oracle (Nasdaq: ORCL). Database titan Oracle impresses some investors with CEO Larry Ellison's enormous stake in the company, which should align his interest with theirs. But others are not inspired by his recent purchase of the Hawaiian island of Lanai for more than half a billion dollars. On the plus side, though, Oracle is embracing fast-growing cloud technology, and analysts have been hiking their expectations for the company.
Finally, Farallon unloaded several companies, several of which were bought out by others. Medco Health, for example, merged with Express Scripts (Nasdaq: ESRX). The deal gives the new company a 40% market share in pharmacy benefits management and 60% of the mail-order drug business. The company also has a few other tailwinds behind it, such as a resumption of its partnership with Walgreen and the expiration of many blockbuster drugs' patents (generic drugs yield higher profit margins).
We should never blindly copy any investor's moves, no matter how talented he or she may be. But it can be useful to keep an eye on what smart folks are doing, and 13F forms can be great places to find intriguing candidates for our portfolios.
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