Here's What This "Market-Destroying" Investor Is Buying
Nov 23rd 2012 3:34PM
Updated Nov 23rd 2012 4:58PM
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, and because of 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 $1.5 billion in value as of September 30, 2012.
So what does Gotham's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are Herbalife (NYS: HLF) and Goodyear Tire & Rubber (NYS: GT) . Other new holdings of interest include Questcor (NAS: QCOR) and Spectrum Pharmaceuticals (NAS: SPPI) . Questcor is a pharmaceutical company that's enjoying solid sales of its multiple sclerosis drug Acthar, which represents a promising opportunity. Its shares were cut in half recently on news that Aetna would only cover Acthar for very limited uses, not seeing it as effective enough for broader coverage. Questcor says the Aetna news won't have "a material impact" on the stock, but investors are clearly spooked. Meanwhile, our analysts have found some interesting details in the company's SEC filings, and patient investors are enjoying its new dividend, which recently yielded 3.1%.
Spectrum is an appealing biotech company, because it actually has some products on the market and not just in development. Its pipeline is promising, and many of its financial numbers are exciting, such as its strong revenue, low debt, and strong margins. Despite all that, it's heavily shorted, due, in part, to worries over competition.
Among the largest positions that Gotham increased its stake in were Cisco Systems (NAS: CSCO) and Dolby Laboratories (NYS: DLB) . It also boosted its stake in Advanced Micro Devices (NYS: AMD) . Advanced Micro is a semiconductor company that has long been battling Intel (NAS: INTC) . It recently announced plans to lay off 15% of its workforce, and many of its financial stats are not encouraging. Still, it may turn itself around and, in the meantime, some speculate that it could end up being acquired. (Buyout rumors are generally not enough to base investment decisions on, though.)
Gotham reduced its stake in lots of companies, including United Therapeutics (NAS: UTHR) , Myriad Genetics (NAS: MYGN) , and Sirius XM Radio (NAS: SIRI) . Some worry that streaming music competition will sink Sirius, but it has been growing its subscribership and monthly price despite that. (A recent smart move that could boost its subscriber rolls is its temporary activation of dormant accounts.) Liberty Media has been approaching majority control of the company, and CEO Mel Karmazin is stepping down in February. Meanwhile, insiders seem bullish, as they've grabbed lots of shares lately.
Finally, Gotham's biggest closed positions included Wells Fargo (NYS: WFC) and Whirlpool (NYS: WHR) . Other closed positions of interest include Nuance Communications (NAS: NUAN) , which has made a lot of money supplying its speech-recognition software to Apple's (NAS: AAPL) and others' devices. Bulls are hopeful about its new business applications, such as ones for the medical field, and voice biometric technology that can identify customers without passwords or questioning. Nuance recently reported record sales of its Dragon Medical offerings. Its move into the auto industry has been a success, too, with its technology now in some 70 million vehicles. In its last quarter, revenue surged more than 25%, but that missed analyst estimates, disappointing some.
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. Therefore, 13-F forms can be great places to find intriguing candidates for our portfolios.
The article Here's What This "Market-Destroying" Investor Is Buying originally appeared on Fool.com.Longtime Fool contributor Selena Maranjian owns shares of Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Wells Fargo & Company. Motley Fool newsletter services recommend Apple, Dolby Laboratories, Intel, Myriad Genetics, Nuance Communications, and Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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