Here are some of his top holdings:
The production and sale of specialty chemicals and specialty materials constitute the main services of W.R. Grace & Co. (NYSE:GRA) which at the same time is divided into two segments: Grace Davison and Grace Construction Products. The former operates with various chemical products used in the production of industrial, pharmaceutical and petrochemical goods and the latter produces and sells construction chemicals and building materials.
Grace's market cap is about $3 billion and it currently trades at about $46 per share. The 31% growth and the 33 hedge funds' portfolios holding the stock in the third quarter 2011 show that its shares have been doing well.
Grace & Co has begun to sell an oil-refining catalyst with reduced lanthanum, which has increased four times in price. Most of the company's customers have turned to the new formula because it offers the same performance as the old one but enables them to save costs.
Why did Ted Weschler decide to invest in it? Since 2005 the company has been reinvesting profits and free cash flow has been improving since 2007, reaching $214.8 million in 2010.
DirecTV Group (DTV) is the largest satellite television provider in the U.S., with 19.8 million customers. Latin America constitutes an important area for its investments regarding satellite operations through Sky Brazil, Sky Mexico and PanAmericana. Eleven million customers profit from these businesses. Besides, the company has acquired three regional sport networks and a 60% stake in the Game Show Network and FUN Technologies under the Liberty Media deal.
DirecTV has increased its share in the U.S. television business. Unfortunately margins have dropped and costs continue to rise faster than revenue. At the same time, an important increase in Latin America’s economy has paved the way for DTV to show that it can do well in this region but some estimate that this market will also be affected by some of the long-term issues it is undergoing in the U.S.
DTV is a solid operator in the pay-TV business. It has created unique contents and maintains a solid customer base. Of course, DTV also faces fierce competition. DISH Network has been outperforming DirecTV over the last ten years and has increased its growth level and profitability. To face this challenge, DirecTV has offered discounts to its new customers creating the risk that these customers will move away once the contract expires.
Despite these ups and downs, DirecTV has an excellent return on invested capital that has gone from 12.96% in 2006 to 23.33% in 2010. Furthermore, it has been improving its cash flow since 2001, jumping from -$1.55 billiob to $2.79 billion. This is what Weschler saw when deciding to invest.
DaVita (NYSE:DVA) provides leading dialysis services for patients suffering from chronic kidney failure. Kidney dialysis centers and their related medical services are the firm's main operations. DaVita is a leader in the market.
There have been some recent acquisitions and investments. One of them is Biorepository Services which will help the firm expand its therapeutic offerings by providing central laboratory services beyond the renal care.
These recent operations have raised leverage. The company held almost $4.5 billion against $575 million of cash and investments. However, it has been somehow compensated by the generation of cash flow.
Ted Weschler saw an interest pick in DaVita as it was trading at a P/E ratio of 17.8, and a forward P/E ratio of 11.8, as of November 10. Estimated annualized EPS growth is 12.6% for the next five years. It pays no dividend, and the profit margin (5.9%) is higher than the industry average of 5.1%.
SandRidge (NYSE:SD) is an independent oil and natural gas companies whose main activities include operations regarding liquids-rich carbonate plays, oil field services business, gas marketing business, and various gas gathering and treating facilities. These activities take place in the Permian Basin and Mid-Continent region of the central U.S.
At year-end 2010, proved reserves were 546 million barrels of oil equivalent, with net production of 55 thousand boe per day. Oil and natural gas liquids represented 37% of production and 46% of reserves.
SandRidge Energy SD has recently announced the filing of a registration statement for the IPO of SandRidge Mississippian Trust II. With this, $500 million in proceeds are expected to be risen.
Ted Weschler became interested in this stock because this new announcement will pave the way for investors to receive a portion of the proceeds from new and existing wells and the company has been able to generate $250 million in cash with another $750 million in the form of a drilling carry over the following three years.
Last but not least, SandRidge has a market capitalization of $3.49 billion, and a price to earnings ratio of 15.21 and its earnings per share is $0.57. Its operating margin ratio is 49.64% and its profit margin is 21.46%.
Valassis Communications (VCI) provides marketing options for advertisers. It has a wide customer base diversified into different segments such as free-standing inserts, shared mail, and newspaper advertisements. It fundamentally depends on USPS for the delivery of marketing materials. This year, the stock lost 42%, thus falling into the dirt-cheap category.
Valassis operates at a trailing P/E ratio of 9.22 and forward P/E ratio of 6.23. It has a pretty high short float of 26%. Fortunately a 17% EPS increase is expected for the next five years. I think Weschler decided to invest on VCI based on these elements.