Stalking EJF Capital

 | Feb 11, 2014 | 4:30 PM EST
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The 13f filings are picking up pace now. Most of the big guys, such as Warren Buffett and Carl Icahn, will wait until the very last minute to send their yearly holdings to the Securities and Exchange Commission (SEC), but a lot firms like to just get it over with and send the paperwork in well ahead of the deadline. One such firm is one of my favorite investment managers to track: EJF Capital, which filed its report on Monday.

I first noticed these guys when I started seeing them as large shareholders in many of the little banks and undervalued REITs I have been buying over the past few years. Upon further digging, I discovered that it was Emanuel Friedman and Neal Wilson, formerly of FBR Capital (FBRC) in Northern Virginia. They did a great job at that firm and revealed themselves to be astute investors, especially in the financial stocks. I actually owe them a vote of thanks as I interviewed with them both back in the 1990s. Had they hired me, I would likely to an institutional broker nursing an ulcer and awaiting another snowstorm instead of sipping coffee in Central Florida this morning.

They were doing a lot of buying in the final quarter of the year. They seem to be particularly enamored of the single-family rental markets. They increased their position in American Homes 4 Rent (AMH) by about 35% and initiated new positions in American Residential Properties (ARPI) , and Colony Financial (CLNY). They also own more than 3 million shares of Silver Bay Realty (SBY) and more than 860,000 shares of Starwood Residential (SWAY). Investors have not seen the high cash flows they expected from the single-family REITs, but I think they have a lot of long-term value. I have only pulled the trigger on Colony, but the rest are on my "buy on a drop" list.

EJF continued to put money into REITs outside of the single family arena as well. They added more shares of Arbor Realty (ABR), the commercial real estate finance firm, in the quarter. They added to Preferred Apartment Communities (APTS) as well giving the firm some exposure to the multi-family housing market. Other REIT purchases during the final quarter of the year include Newcastle (NCT), NorthStar (NRF), Agree Realty (ADC) and Felcor Lodging (FCH). Interestingly, I do not see that EJF has bought any mortgage REITs yet, in spite of the big drop in those securities.

The largest new position in the final quarter of the year was Encore Capital (ECPG). The company purchases and manages portfolios of defaulted consumer receivables and also has a division that assists property owners who are delinquent on their property taxes by structuring affordable monthly payment plans. The company has delivered solid earnings growth but it looks a little rich to me at current levels.

They bought a lot of banks in the quarter. Their new positions include: SunTrust (STI), Regions Financial RF, Community Financial (TCFC), Seacoast Bank of Florida (SCBF), Prudential Bancorp (PBIP) and Peapack-Gladstone (PGC). They also added to many of their existing bank positions including TFS Financial (TFSL), Citigroup (C), HomeTrust (HTBI) and JPMorgan (JPM). They also bought more shares of many of their smaller bank positions. It is worth your time to read through the filing to see which banks too small to mention here are being accumulated by some pretty smart investors.

The decline in many energy related stocks apparently caught their eye as they stuck a toe into the energy pool. They bought stocks like National Oilwell Varco (NOV), WPX Energy (WPX), Holly Frontier (HOF), Pioneer National Resources (PXD) and Superior Energy (SPN) during the quarter. I am a pretty big long-term energy bull, so it was nice to see some of the smartest guys around taking at least a small position in these stocks.

EJF Capital added some interesting nonfinancial or energy stocks in the quarter as well. They opened a new stake in shares of Crocs (CROX) as that company's turnaround begins to gain traction. They bought shares of Baltic Trading (BALT) during the quarter, as shipping stocks remain cheap in spite of the strong performance in 2013.

EJF Capital has quickly climbed up near the top of my list of investors to track in my search for new ideas. They are value oriented with a heavy focus on banks and real-estate related securities, making them a perfect hunting ground in my search for safe and cheap stocks.

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