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 Asset Management. 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 and because his system of seeking out companies with high returns on capital and hefty earnings yields. 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 $2.0 billion in value as of March 31, 2013.
So what does Gotham's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are Seagate Technology and Warner Chilcott. Other new holdings of interest include Tellabs (UNKNOWN:TLAB.DL) and Windstream (NASDAQ:WIN). Tellabs offers a satisfying dividend yield of 3.7%, but the networking equipment maker has been facing some headwinds, such as the death of its CEO and the recent departure of its CFO. Its performance has been spotty, besting estimates in its fourth quarter but disappointing them in the recent first quarter.
Rural telecom company Windstream has an even more fetching dividend yield, north of 11%! But while it's shifting its focus more toward broadband service, it remains significantly a landline company, and its last quarter featured declining revenue. It did post a profit, but not one that would support its current dividend level. Its investments in new revenue streams may ultimately pay off, though.
Among holdings in which Gotham Asset Management increased its stake was Atmel (UNKNOWN:ATML.DL), which makes touchscreen controllers. The stock recently hit a 52-week high, but it has been posting shrinking revenue and earnings lately. The company is plumping up its profit margins by cutting costs, has a growing backlog, and expects improving business conditions. Some see the stock as undervalued, with its forward P/E near 14.
Gotham Asset Management reduced its stake in lots of companies, including Frontier Communications (NASDAQ:FTR). Frontier, like Windstream, is a high-yielding rural telecom specialist. It's weighed down with considerable debt, and though it is shifting its business focus, favoring business customers now, it's been posting declining revenue lately. Its credit rating took a hit in recent months as well.
Finally, Gotham's biggest closed positions included Wells Fargo warrants and Georgia Gulf. Other closed positions of interest include Nuance Communications (NASDAQ:NUAN), which develops speech-recognition software. The stock sank late last month, after posting disappointing earnings. Nuance is threatened by weak demand, shrinking margins, and intensifying competition. Carl Icahn has taken a big stake in the company, but some doubt the wisdom of that. With its seemingly low valuation, some see it as a buyout candidate.
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. 13-F forms can be great places to find intriguing candidates for our portfolios.