Sifting for Value Ideas in Another 13F

 | May 16, 2014 | 2:30 PM EDT  | Comments
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Stock quotes in this article:

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tlmr

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apo

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cg

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True to form, the 13F filings from the big guys are getting wide coverage around the web and on the tube this morning. Investors are digging through the reports and analyzing the buying and selling activities of the big hedge fund managers, such as David Einhorn, John Paulson and Seth Klarman. I will read these filings, but they will be pretty chewed-over by the time the weekend is over. While the focus is on the rock stars, I am reviewing the holdings of my favorite lesser-known money managers, in search of ideas that can make us some money.

Some of my favorite managers to steal ideas from these days are the folks at EJF Capital. A couple of years ago, EJF started popping up in position reports in a lot of my stocks, and I took a deeper look to see who these guys were and why they owned so many of the same little banks and real estate investment trusts (REITS) that I was buying. I found that the founders are from the old Friedman Billings & Ramsey, a firm I know very well from my years as a broker. They dominated the small bank and REIT space in the mid-Atlantic and built a solid investment bank and research firm. I added EJF Capital to my must-follow list, and it is one of my favorite filings every quarter.

The firm continues to buy the small banks that I believe make up the "trade of the decade." EJF joined Michael Price in buying both Waterstone Financial (WSBF) and Prudential Bancorp (PBIP) in the first quarter. These are both recently converted mutual thrift banks that sell at healthy discounts to book value, and they should reward long-term shareholders handsomely. The firm also bought into the IPO of Wilbur Ross-banked Talmer Bancorp (TLMR). The firm also bought several new positions and added to existing positions in banks that are too small and illiquid to mention here, but it is worth your time to go through the filing to see what EJF is buying.

EJF apparently likes the future of private equity as much as I do. EJF was a buyer of both Apollo Global Management (APO) and Carlyle Group (CG) in the first quarter, The private-equity firms are ringing the bell this year, cashing out of older investments, and that is going to ramp up the fees they earn. I also expect them to earn pretty decent returns and incentive fees from the investments they have been making in sectors such as shipping, energy and financial services over the next five-plus years. In a world starved for returns, private equity should continue to do well, and these stocks can help individual investors get in on the game.

The firm apparently is still pretty bullish in the existing single-family home markets. It bought more shares of Colony Capital (CLNY) and American Homes 4 Rent (AMH) in the quarter. Interestingly, although EJF still has a pretty big position in Silver Bay Realty Trust (SBY), it reduced its position by about half, so it must see something there that's concerning. The firm also opened a big position in Home Loan Servicing Solutions (HLSS), a company that buys mortgage servicing rights.

The firm sold out of some of its large-cap financial holdings. It exited its stakes in American International Group (AIG), Bank of America (BAC), Regions Financial (RF), MetLife (MET), Fifth Third Bancorp (FITB) and KeyCorp (KEY). These have all had a huge run the past few years, and it is probably a good time to think about joining the firm by lightening up on some of these holdings. EJF still likes some of the big names, as it still owns Citigroup (C), and it was a buyer of Bank of New York Mellon (BK) in the quarter.

The firm was a buyer of homebuilders in the quarter, adding new positions in Lennar (LEN), Standard Pacific (SPF) and Taylor Morrison Homes (TMHC). I will have to agree to disagree on this one, as I would prefer to be short the builders rather than long. I do not see how the building can continue, given the poor jobs situation and overall weak economic recovery.

The folks running EJF Capital have a solid track record of success in the markets, and its expertise in financials and REITs can help you find some real gems and undervalued stocks. EJF is on my must-follow list, and it should be on yours as well if you are a long-term, value-oriented investor.

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