Caxton Associates manages some of the best-performing hedge funds, reportedly putting up returns of 14% per year over its history and doing so with half the volatility of the S&P 500 Index (^GSPC 1.04%). It does so with a long-short strategy that calls for concentrated bets on individual stocks alongside put options against broad market indexes. To win, Caxton has to nail its stock picking, something it has done since its founding in 1983.
Recently revealed 13F filings show what the hedge fund manager was buying and selling last quarter, giving investors some new stocks to keep on their watch lists.
1. A big bet on beverages
Caxton is looking for a monster -- Monster Beverage Corp. (MNST -0.04%), that is. The hedge fund company disclosed that the energy drink maker quickly became its biggest individual stock position, acquiring nearly 1.15 million shares. That makes it equal to nearly a tenth of the entire publicly disclosed portfolio.
The company's core products, energy drinks, are some of the few remaining growth products in carbonated drinks. The company now lays claim to a majority of the market, overtaking Red Bull as the dominant energy drink company. Impressively, sales continue to grow at a breakneck pace. The company reported sales of 81 million cases last quarter, a 31% improvement over the 62 million cases sold in the same period of 2014.
2. Banking on a giant
Caxton's investment in Bank of America (BAC 1.24%) grew a little bigger this quarter, with the Charlotte, N.C.-based bank growing to roughly 7% of the portfolio from under 6% last quarter. The asset-sensitive bank has been a favorite of top stock pickers for some time, as Charlie Munger's Daily Journal Corp. has nearly 30% of its portfolio invested in the company.
Bank of America isn't just a play on interest rates, however. The company's cost-cutting has produced a more efficient bank that takes more of its revenue to the bottom line. Recently, its efficiency ratio in its consumer banking unit dipped below the 60% level often described as being a threshold for a "good" bank. And it isn't taking its foot off the gas pedal: at a recent conference, Bank of America CEO Brian Moynihan suggested that for every dollar it is investing in technology today, it expects to see a dollar of cost savings in perpetuity.
Having shed their bad loans during the financial crisis and upped their capital levels, many believe the bank industry may offer some of the best stock market values. Cleansed loan books, cost cutting, and rate hikes should give banks plenty of room to grow earnings over the long haul.
3. If you build it, you can sell it
A heightened pace of new home sales should be a boon to one of Caxton's investments: homebuilder Lennar Corp. (LEN 2.24%), which is seeing increased demand for new builds. Though new home sales recently came in at an annual pace of 495,000 units, well below the peak of nearly 1.4 million in 2005, there is reason to believe that the uptick in construction may have legs for years as millennials pay down student debt and move out of mom and dad's house.
Lennar is perhaps more dependent on a recovery in homebuilding than its peers, having deployed billions of dollars to acquire land for development. The company's balance sheet reflects nearly $4.9 billion of its $14.2 billion in total assets is invested in land and land under development.
To put its land ownership in perspective, the company's recent quarterly filing shows that its homebuilding unit generated $2.2 billion in revenue in the most recent quarter, of which only $23 million (or about 1% of the unit's revenue) came from land sales. On a recent conference call, Lennar CEO Stuart Miller noted that his firm has seen "probably a 14% kind of inflation factor for land on an annual basis right now," suggesting that a tightening market is making its land holdings a little more valuable each and every day.