As the 13F filings piled in yesterday, I reviewed some of the bigger ones just to see who was doing what. The whole Street was reading them at pretty much the same time, so there was no informational advantage. But the information that, for example, David Einhorn sold Microsoft (MSFT) and Daniel Loeb bought Disney (DIS), is still useful, although it is not really actionable-research worthy information for me.
That's not the case with Paul Isaac of Arbiter Partners. I find some useful investable information in his portfolio every quarter. I enjoy reading his filings -- and it's really good for my ego. One of the most successful hedge fund managers of the last decade, Isaac learned the craft form his father and his legendary uncle, Walter Schloss.
He owns and has been buying many of the same stocks that I have in the past year. That really increases my comfort level with stocks such as Calamos Asset Management (CLMS), National Western Life Insurance (NWLI) and a host of small-cap banks that we both own right now.
The fund opened some interesting new positions in the second quarter. Arbiter bought shares of oil and gas company Apache (APA) in the quarter, The stocks has traded right around book value in recent months. The company is selling its Gulf Of Mexico assets to focus on onshore operations in the Permian/Anadarko Basins. The company also has operations in Egypt, which is a concern for many investors right now. The large-cap company is on my buy list as the stock could easily move back above the $100-share mark in the next couple of years.
The fund also bought the recent spinoff form Brookfield Asset Management (BAM). Brookfield Property Partners (BPY) was formed to hold the commercial real estate operations of Brookfield and owns shopping malls, multi-family housing, office properties and have been buying industrial properties of late. The shares trade at about 80% of the equity value (as reported at the end of the second quarter) and yield a little over 4%. I am a huge fan of Brookfield deals and will be reading further on this one over the weekend.
The 13F filing also shows a large new holding in AMBAC Financial Group (AMBC), which I suspect was gained though participation in the bankruptcy process. The bond insurance company emerged from bankruptcy in May. There is a lot of stock in the hands of distressed funds that will be looking to sell on strength, so I am not really interested in this one right now. The recent developments in the municipal market may make the stock more interesting should vulture-fund selling push the stock back below the $20 area later this year.
The fund was also buying some of the battered technology stocks that have underperformed the market in the past few years. During the quarter, it also added to its stake in semiconductor equipment company Amkor Technologies (AMKR). The stock is pretty cheap, as it is trading at just around tangible book value. The company's earnings should gain some momentum in the future, driven by increasing demand form the smart phone and table computing markets. The company is working to restructure its debt load and success in this endeavor could help unlick the value of the stock in the next year.
Isaacs's fund also opened a new position in network solutions company Emulex (ELX). As the economy eventually improves and corporations and governments begin to spend on IT infrastructure again, the company should see revenues and earnings grow at a decent pace. The company has made acquisitions that broaden its product line, which should prove to drive growth. This one is not really my cup of tea because it trades well above tangible book value. (However, investors should note that Isaac is a lot smarter than I am.)
The fund held firm on most of its small bank positions in the quarter but they did add to two banks that had outstanding earnings reports this month and showed strong improvements. Both Intervest Bancshares (IBCA) and Eastern Virginia Bancshares (EVBS) are in my trade of the decade portfolio and I am happy to see that a smart and successful fund manager is in agreement.
Over the past few years, the reports from the larger fund managers have turned into just more market noise. However, the smaller managers (with higher returns) such Arbiter are still a source of great ideas that are worthy of further investigation and investment.