A fellow investor asked me recently why I write so much about 13F filings every quarter, as most media and market types give them a once-over and forget about them. My answer is the same one Willie Sutton gave when asked why he robbed banks: "Because that's where the money is" -- so here's what the latest 13F from hedge fund Arbiter Partners shows.
Now, I've made an enormous amount of money over the years by using 13F filings to purloin ideas from the very best value and activist investors. I've been doing so since the 1980s, when investors had to subscribe to services that compiled all of the filings and mailed them to us. (Nowadays, they're available free online at the U.S. Securities and Exchange Commission's Web site.)
You would think the market would have arbitraged this strategy out of existence by now, but everyone is so busy following Wall Street's rich and famous that investors seem to ignore many smaller but wildly successful institutional players.
But frankly, I gain no edge whatsoever by "discovering" through a 13F that one of Warren Buffett's portfolio managers bought Apple (AAPL) or what Carl Icahn likes. However, I get a tremendous advantage by learning which little banks that activist investor Joseph Stilwell or Arbiter Partners CEO Paul Isaac are buying.
Arbiter in particular has put up a fantastic track record over the past decade, and I've been mirroring the firm's ideas for several years now with outstanding results. (I've also had the pleasure of meeting Isaac, and he's not only a smart investor but one of the good guys on Wall Street.)
Here are four stocks that Arbiter's latest 13F shows the firm favors:
Capital Senior Living Corp. (CSU)
Arbiter boosted its stake during the first quarter in CSU, which provides housing to senior citizens.
This stock isn't cheap by traditional value metrics, but senior housing is a growth industry and will be for some time to come. CSU operates independent-living and assisted-care facilities, and has been adding memory-care units as well. The company currently has 126 senior-living communities with an aggregate capacity of approximately 15,800 residents.
In a recent presentation, management said its growth plan involves capitalizing on market fragmentation to strategically aggregate local and regional operators in geographically concentrated regions. That's similar to what Richard Rainwater and Rick Scott successfully did with hospitals years ago when building HCA (HCA), so I think CSU will offer long-term shareholders a big pay-off.
Arbiter also added to its stake in Intelsat, which operates the world's largest communications-satellite backbone. Coupled with a ground-infrastructure network, Intelsat's satellites allow customers to deliver high-quality, cost-effective video and broadband services anywhere in the world.
The stock currently trades at less than 5x free cash flow and below 8x projected earnings, so it's cheap by traditional value metrics. Intelsat also has a contracted backlog of $9.3 billion, or 4x trailing-twelve-month revenues. So, the firm should continue to produce high cash flows going forward.
The bottom line: The use of satellites for broadband services is a growth industry and will remain one for a long time. Intelsat looks like a solid way for long-term investors to participate.
Cowen Group (COWN)
Arbiter continued to buy asset-management and investment-banking firms during the latest quarter, purchasing of more than 1.5 million Cowen shares.
COWN is trading at only about 50% of book value, but is profitable so far this year and expected to be in 2017 as well. Management is also buying back stock, repurchasing 1 million shares during the first quarter alone. Executives recently added $3.6 million to the firm's current share-repurchase plan, boosting total authorized buys to as much as $25 million.
Cowen also bought several units from CRT Capital Group during the latest period, including CRT's credit-products, credit-research, special-situations and emerging-markets divisions. This will allow Cowen to participate in what should be a growth market for distressed securities. Lastly, COWN increased its stake in Oppenheimer Holdings (OPY) during the latest quarter.
All in all, Cowen strikes me as cheap at current prices, with a very bright long-term future.
PB Bancorp (PBBI)
Arbiter is a big fan of what I call the "Trade of the Decade" -- small community banks.
The firm held more than 20 such banks in its portfolio during the first quarter, and it's worth your time to read the filing and research all of the little banks that the company owns. The firm added to one position during the first quarter: PB Bancorp (PBBI).
The Bottom Line
Arbiter Partners doesn't garner the headlines that Buffett or Icahn do, but its 13Fs have been a fantastic source of profitable ideas for me. I believe the firm's 13F filings should be mandatory reading for all long-term, value-oriented investors!