Fresh Picks From a Wizened Fund

 | Feb 07, 2013 | 10:00 AM EST  | Comments
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John Armitage and William Bollinger started Egerton Capital almost 20 years ago, making this firm a dinosaur in the fly-by-night hedge-fund industry. Bollinger has since retired from the London-based fund, leaving Armitage at its helm to manage the firm's $2.6 billion in assets. Highly favoring service-based companies like Visa (V) and MasterCard (MA), the hedge fund recently showed its latest allocations with its fourth-quarter 13F filing (see how they stand next to Egerton's previous 13F). We've sorted the list to identify the top five newest positions that Egerton has tacked on to the portfolio as of December.

First, joining Armitage's list of credit-card holdings is American Express (AXP). The company, which roughly matches MasterCard's market capitalization of $65 billion, is known primarily for its charge- and credit-payment-card products. A number of analysts ranked the stock a buy going into 2012, but the latter half of the year saw downgrades to neutral from the likes of Goldman Sachs and J.P. Morgan. Egerton certainly seems to be rounding out his exposure to credit-card-based firms with this purchase, although AmEx's all-encompassing business model squeezes out more value in the processing chain vs. Visa or MasterCard. (Billionaire Warren Buffett also has a position in AmEx -- an incredible $8.6 billion, via his Berkshire-Hathaway (BRK.A) -- though this isn't even his largest holding.)

Egerton's next-largest addition came in the form of Bank of America (BAC), signaling a strong financial tint to Armitage's interests in 2013. The bank saw a generous raise in its stock price in the last 12 months, generating 46% returns for investors who bought this time last year. BofA is still facing investigation from regulatory authorities for potentially having hand in LIBOR rigging, and it's still suffering under the weight of its mortgage-related liabilities. In spite of that, many other large hedge funds are joining Egerton's position (or, rather, vice versa), including billionaire Ken Heebner of Capital Growth Management.

The "Google (GOOG) of Russia" finds a spot on our list: Egerton has also established a new position in Russian Internet company Yandex (YNDX). The stock has a strong foothold on search traffic in Russia, having snatched up more than 60% market share, as well as operations in Ukraine, Kazakhstan, Belarus and Turkey. Analysts are now watching the company retrace some of the traffic and monetization steps that Google has implemented in the past, although there have been some pitfalls. Last month, the debut of Yandex's SIRI-esque search engine app was quickly met with opposition from Facebook (FB), which said it violated their terms of use and blocked its access.

Also getting a home in Egerton's portfolio was Six Flags Entertainment (SIX). The amusement-park operator saw a 46% rise in stock price this past year, rewarding investors -- such as Remy Trafelet -- who had already invested months and months ago. Six Flags carries an impressive dividend yield of 5.6%. Combine that with one-year price targets, which hint at a further 8% share-price hike, and you have impressive growth and income opportunities. The company is expected to report a loss on Feb. 20, however, so be wary of a potential dip.

United Rentals (URI) rounds out our list of Egerton's top new holdings, with slightly more than 1% of assets dedicated to the equipment-rental company. United blew through every earnings estimate in 2012, consistently beating by some staggering percentages. Zacks Investment Research upgraded the stock to a buy at the start of this year, citing rising estimates and improved cost-control measures. The ratings agency also sees further business driven to United as construction continues to strengthen throughout the U.S. Along with Egerton's equity stake, Robert Emil Zoellner of Alpine Associates has a significant bond investment in the company.

-- Written by Eric Winter

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