We're now approaching one of my favorite times of the year -- not Valentine's Day or spring training, but the period when money managers and hedge funds have to make quarterly 13F filings. These filings force top-flight investors to peel back the curtain on their portfolios a bit and give us all a peek inside.
Quarterly 13F are one of the more valuable tools available to individual investors, but also one of the more underutilized. Plenty of people look at what Warren Buffett, David Einhorn, Bill Ackman, Daniel Loeb and other "rock stars" are buying and selling, but all too often ignore other very successful investors.
Arlington, Va.-based EJF Capital is just such a firm. These guys are very good at what they do, and they tend to specialize in financial and real estate stocks -- so ideas from them are right in my wheelhouse.
EJF has been a huge participant in the "trade of the decade" in community banks, and I own a lot of the same little bank stocks that they do. I've also gotten some solid ideas from them about REITs and some larger regional banks.
The firms' fourth-quarter filing came out yesterday, and here are some highlights of what it showed:
The first thing I noticed was that EJF went a little outside of its usual focus by taking small positions in some energy stocks. Oil stocks just keep getting cheaper and cheaper, so value-oriented investors have to at least consider buying into the sector.
EJF appears to have stuck to some of the segment's more solidly financed companies, buying stakes in Carrizo Oil & Gas (CRZO), Devon Energy (DVN), Range Resources (RRC) and Western Refining (WRN). The firm also made some small bets on alternative energy, purchasing shares of Nextera Energy Partners (NEP) and SunPower Corp. (SPWR).
Blackstone Group (BX)
While EJF appears to have sold a position in KKR (KKR) during the fourth quarter, the firm opened a new position in private-equity giant Blackstone Group. I have no idea why EJF sold KKR, but I personally like everything about private-equity stocks at current prices.
Blackstone CEO Stephen Schwarzman said during the company's latest earnings call that BX's funds were largely outperforming the public markets, and that the firm was taking advantage of weakness to deploy capital. Blackstone also has the industry's largest supply of dry powder -- $80 billion of investors' cash that the firm can use to continue buying into the market's ongoing weakness.
Associated Capital (AC)
EJF also opened a new stake in Associated Capital during the fourth quarter.
AC is an asset-management business spun out of Mario Gabelli's Gamco Investors (GBL) back in November. A friend passed along a hedge-fund manager's write-up on the stock earlier this week, and the analysis makes very clear that Associated Capital is massively undervalued at its current price of around $25 a share.
AC said in its latest earnings release that the company has a pro-forma book value of about $30 and a call-adjusted economic book value of a little over $40 a share. The higher number is close to what the hedge-fund report estimates the stock is really be worth, but I think both numbers understate AC's value a bit.
Associated Capital runs an institutional research division, a hedge fund with over $1 billion in assets, and separate accounts for institutions and high-net-worth individuals. Management's first act following AC's spinoff was to announce a 500,000-share buyback.
Citizens Financial Group (CFG)
EJF also increased its stake in Citizens Financial Group during the fourth quarter. I'm also buying this bank, as I think it's on the verge of being ridiculously low-priced following a roughly 30% decline since 2016 began.
Shares are trading at a little below 80% of book value even though management has done a fantastic job of executing its strategy since Royal Bank of Scotland (RBS) spun off Citizens last year.
Non-performing loans are just 1.17% of bank's total portfolio, and loan-loss reserves are 115% of nonperformers right now. Citizens' equity-to-asset ratio is also almost 14, so the bank has more than enough capital. CFG's loan book also has less than 1% exposure to energy.
I see no real reason for bank's recent sharp selloff, so I'm happy to be buying it right now. The fact that one of America's smartest hedge funds is buying the stock (or at least did so in the fourth quarter) just reinforces my strong positive view of Citizens.
The Bottom Line
The above moves are my key takeaways for EJF's most-recent 13F, but there's a lot more information for those willing to take the time to check the filing out. The firm bought some small banks that by themselves could change your portfolio's 2016 performance, and purchased some intriguing real estate positions as well.
The bottom line: The folks at EJF are smart guys, so it'd be wise to check out their investment ideas.