The 13F filings continue to flow into the SEC. As I mentioned yesterday, the biggest and best-known investors will get a lot of attention over the next few days. I find just as valuable, if not more valuable, to track special situation and distressed investors who are not in the public eye as much as the heavy hitters.
One such investor is David Nierenberg of The D3 Family Funds. I have been following him since I saw him speak at a Value Investing Conference in New York a few years back and was impressed by his approach. Similar to me, his firm tends to be a long-term holder, and it was from Mr. Nierenberg that I stole my much-used phrase that looking for returns is measured in multiples not just percentages.
When I looked at his filing this quarter, I noticed that he finally sold out of his position in real-estate-based Internet service Move Incorporated (MOVE). It was one of the first stocks I stole from him and exited with a double back in 2012. He is selling with about a 50% or so higher gain than I achieved. Patience does indeed pay.
Mr. Nierenberg has some very interesting buys this quarter that ordinarily would never have popped up on my radar screen.
Malibu Boats (MBUU) makes high-end performance boats and just came public earlier this year. The company is a market leader in the sport performance boat marketplace, with about one third of the entire market for boats that are used primarily for waterskiing, wakeboarding and a new sport called wakesurfing.
Malibu Boats could be a tremendous growth story with the boat market just starting to recover and a long way to go to reach peak sales levels seen before the crisis. The shares appear to trade at a low multiple of free cash flow, as the market cap is around $300 million and the company generated a little over $30 million in free cash over the previous 12 months. Interestingly, funds overseen by Paul Tudor Jones, Steve Cohen and Charles Royce have also been buyers of the stock this year, so it is worth a deeper look at this level.
The D3 Family Funds also opened a small position in Houston Wire & Cable Company (HWCC) during the quarter, which is one of the largest suppliers of electrical wire and cable and related services in the U.S. industrial distribution market. The company makes everything from Ethernet and fiber-optic cables to bare copper wire and aluminum cable. Houston Wire's products are used in infrastructure, utility and industrial markets. The company also appears to have an early-adapter advantage in low‐smoke, zero‐halogen products in the U.S.
Earlier this year, management announced a shareholder-friendly buyback plan for almost 10% of the outstanding stock, and the current dividend yield is 3.71% (also shareholder-friendly). This one is going to take a little deeper dive on my part, but I am intrigued by this basic business and the potential for the greener, safer zero-halogen products.
Mr. Nierenberg runs a very concentrated portfolio, so when makes a move in his funds, it is worthy of our attention. He only holds seven stocks right now, so these two new additions are likely high-conviction investments on his part and not just a toe in the water.
I also noticed that The D3 Family Funds hold stakes in Tecumseh Products (TECU) and Rosetta Stone (RST), two stocks that are very much on my radar screen. Nierenberg added a little to the Tecumseh position in the quarter as well.
Although he is not as well-known as some of the big hedge fund players that we will read about over the weekend, I have made a lot of money stealing ideas from David Nierenberg's funds, and that puts him pretty high up on my list of people to whom I should pay attention during 13F season.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider MBUU, HWCC, RECU and RST to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.