Tracking Taconic's Top Picks

 | May 21, 2013 | 11:00 AM EDT
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Taconic Capital Advisors is one of the hedge funds we are tracking very closely. The fund's manager, Frank Brosens, has built an equity portfolio of about $2.6 billion, and he made some curious additions to it during the first quarter of 2013. Among the newcomers to his portfolio are the notorious Dell (DELL) and the British entertainment and communications provider Virgin Media (VMED). Let's analyze the numbers behind the moves.

The full 13F filing can be found here. It's important to track hedge fund sentiment, because on the whole, these funds' best picks have been shown to outperform the market. Retail investors can capitalize on this phenomenon, but they have to know where to look.

Taconic is betting big on oil, adding 27% to its stake in BP (BP) last quarter. The 13F reports that the fund holds 12 million shares valued at $508 million, as of March 31, 2013. The stock trades at a trailing price-to-earnings ratio of 6.06 and a forward P/E ratio of 7.65. The stock also has a beta of 2.21, making it very volatile, and it pays a dividend of $2.10 -- a 4.9% yield. Analysts have a good outlook for BP: Seven of them recommend it as a Hold, and seven rate it a Buy or Strong Buy; they have also set a price target range of $45 to $61. At the time of this writing, shares trade at a little over $43.

The second-largest investment reported by Taconic has not changed from the prior quarter's 13F: General Motors (GM). The fund made a small increase to its holding of the carmaker, and as of March 31, it held 10.35 million shares worth $288 million. General Motors has a trailing P/E ratio of 10.63, significantly lower than the industry average of 19.50. The company posted better-than-expected financial results for the first quarter of 2013, beating Wall Street estimates on both revenue and earnings; Revenue for the quarter was $36.9 billion, and earnings per share was $0.67. In the current quarter, analysts estimate that General Motors will do even better: Revenue is predicted to rise to $38.01 billion, with EPS increasing to $0.73.

A new addition to Taconic's equity holdings is Dell. According to the 13F, the fund acquired 19.3 million shares of the company, worth $276 million, during the quarter. Dell is in the process of being taken over by its founder, Michael Dell, and Silver Lake Partners, with help from Microsoft (MSFT). The takeover will cost the partners $24.4 billion, which works out to $13.65 per share. The stock's price has been fluctuating around this value since news of the takeover was reported. Last Thursday, Dell reported its financial results for the first quarter of 2013. Excluding special items, earnings were $0.21, far below analysts' expectation of $0.35, and revenue was $14.1 billion, ahead of the consensus estimate of $13.52 billion.

Taconic has added to its holdings of WPX Energy (WPX), a producer of natural gas and oil. Taconic has increased the number of WPX shares it holds by 32%, to 9.9 million, for a reported value of $158 million. The stock price is up 15% in 2013, and it seems to be in an uptrend. It has a beta of 1.65, making it fairly volatile, and does not pay a dividend. For the first quarter of 2013, WPX Energy reported revenue of $267 million and a loss per share of $0.58. For the next quarter, Wall Street expects the company to improve its results and to report losses of $0.16 per share and revenue of $771.21 million.

Another newcomer to the fund's top five is Virgin Media, in a holding worth $130 million. The stock price has been in an uptrend since the start of 2013, surging 24% to a current value of a little over $50 per share. Virgin Media's stock has a trailing P/E ratio of 3.55, significantly lower than the industry average of 16.20. It has a beta of 1.09 and pays a dividend of $0.20, which translates into a minute yield of 0.4%. Analysts have a good opinion of the stock: Seven of them recommend it as a Hold, and four tag it as a Buy.

Taconic Capital Advisors' management team has made some important changes to its equity portfolio, the most notable ones being the addition of takeover candidate Dell and the British media company Virgin Media. We believe investors should keep an eye on the latter, as well as General Motors, as both companies may be increasing their revenue and earnings in the coming months.

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