A Must-Read Filing From a Value Pro

 | Nov 11, 2013 | 3:00 PM EST
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Let me start the day as I do every year at this time, by mentioning how irritated I am that the U.S. stock market is open today. This is a day that when we should take a clue from the banks and the bond market and close, in order to honor all of those who have worn the uniform of their country over the decades. It is the right thing to do.

Having said that, let's move along to the continued flood of 13F filings that are rolling in as Wednesday's deadline approaches. One of my regular reads every quarter is that of Oaktree Capital (OAK) the distressed-asset and value firm led by veteran investor Howards Marks. Marks is one of those investors who has been around for a long time and has achieved a great deal of success in a wide variety of market conditions and economic backdrops. If you have not read his book, The Most Important Thing, I urge you to order it today. His quarterly letters on the firm's website also make for fantastic reading.

Most of the firm's investment activity involves debt instruments, but it does take significant equity positions, usually in sectors and stocks that are very cheap and out of favor. Oaktree has been very active in the shipping stocks for some time now, and it made some interesting moves in the quarter.

The Baltic Dry Index shot up in the quarter, and many of the shipping names soared during the first part of the year. Oaktree took advantage of the strength by selling its entire stake in Genco Shipping (GNK), which jumped 50% in the quarter, and trimming its position in Baltic Trading (BALT) by 30%. The firm still owns 900,000 shares of Baltic, and it is a stock I would love to buy on a significant decline in the sector or in the markets.

This is not to say that Oaktree is exiting the sector, however. The firm bought more than 21% of Star Bulk Carriers (SBLK) in the quarter, probably buying much of it during the recent stock offering. Star Bulk Carriers is using the offering to purchase nine new vessels. The CEO recently addressed the fleet additions as well as the expansion of the third-party fleet management business, telling investors, "We anticipate demand for dry bulk commodities from most developing countries to continue to grow and the freight market to start showing signs of improvement due to the lower order book, slow steaming and the scarcity of bank financing." Oaktree's Marks appears to agree, and so do I . Trading at 40% of book value, this stock has enormous upside potential in an economic recovery that strengthens the shipping industry.

Oaktree also purchased more than 900,000 shares of Capital Product Partners (CPLP). The firm is in the business of shipping oil and refined products and currently has a fleet of 27 ships. Although Capital Product Partners is not as cheap on a price-to-book-value basis as Star Bulk, the shares do pay a very generous dividend and currently yield 11%.

Oaktree also participated in a stock offering that allowed it to shed a portion of its stake in First Bancorp (FBP) the Puerto Rican bank it helped to recapitalize. Although Oaktree shed 17% of its holding, it still owns more than 20% of the bank, while Thomas Lee, a private-equity firm, also owns an additional 20%. The stock has pulled back from the offering price and is looking like a bargain once again at current prices. Aggressive, patient investors might want to look at the shares as a way to take advantage of the eventual financial fix that is sure to happen in the island territory at some point in the not-too-distant future.

Oaktree also exited its stake in the highly leveraged gaming concern Caesars Entertainment (CZR). The shares are up more than 200% in the past year, amid talks of restructuring the company and its horrendous debt load. Other significant sales in the quarter included Safeway (SWY) and Charter Communications (CHTR), as both are up big this year.

Howard Marks and his team of talented professionals have provided me with some great stock picks and even more invaluable insights into the markets. Their filings are on my must-read list and should be on yours as well.

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