The market may have soared, but the average hedge fund returned only 7.4% in 2013. Meanwhile, Larry Robbins (Trades, Portfolio)’ Glenview Capital did multiple laps around them, with his $1.8 billion Glenview Capital Opportunity Fund return more than 100% over the year, to become the top-performing hedge fund.
Glenview, which Robbins founded in 2001, manages approximately $7.4 billion in assets and focuses on fundamental research and individual security selection. In explaining his funds’ incredible year, Robbins told Bloomberg that his teams’ long-term focus drove the returns. His portfolio for 2014 is positioned as follows:
“As we enter 2014 our long investment portfolio is trading at about 14 times this year’s earnings, it’s trading at about 12 times next year’s. Again, we don’t have a crystal ball as to whether the economy this year will be phenomenal or weak. What we do know is that companies that were sitting with cash, earning zero, or companies with excess debt capacity, that even though we’ve seen a rise in interest rates, the average investment grade company can still access debt at 2 1/2% after tax, even your average high yield company can access debt at after-tax of 4 ½%. There are a significant amount of wonderful capital deployment opportunities: share repurchase, or strategic M&A.”
Currently, the value-conscious investor’s portfolio contains four stocks trading at or near their 52-week lows: The ADT Corporation (ADT), Big Lots Inc. (BIG), Calpine Corp. (CPN) and J.C. Penney Co. Inc. (JCP).
The ADT Corporation (ADT)
Glenview purchased 2,024,452 shares of ADT Corp. in the third quarter, when its price averaged $41..
ADT’s price has since dropped 7% to $38.07 on Tuesday, which is 1% above a 52-week low.
Fiscal 2013 was ADT’s first year as a standalone, public company. It is a provider or electronic security and monitoring services for homes and small businesses throughout the U.S. and Canada.
The company reported fourth quarter net income of $96 million, up 2.1%, and revenue of $777 million, up 4.7%, with its customer base increasing by 100,000 customers to an all-time high of 6.5 million. For fiscal 2014, it is expecting revenue growth between 4% and 5%, EBITDA margin improvements of 50 basis points, and free cash flow growth between 5% and 10%.
ADT has initiated an ambitious capital return program. By the first half of 2014, it expects to substantially complete its existing $2 billion share repurchase program. On Nov. 20, 2013, it increased the authorization by an additional $1 billion, with an expiration date of Nov. 27, 2015. Within the year of its status as an independent company, ADT has repurchased $2.4 billion on share repurchases, retiring 20% of its outstanding shares.
ADT’s price is near a two-year low. Its P/E at 20.6 and P/S at 2.63 are likewise near their respective two-year lows. Its P/B at 1.89 is near a one-year low.
Big Lots Inc. (BIG)
Glenview purchased 1,669,136 shares of Big Lots Inc. in the second quarter of 2013, when the price averaged $35. The holding equates to 0.52% of the portfolio.
Big Lots’ share price has declined 22% from the firm’s average buy price, to $27.56, with is 1.1% above the company’s 52-week low.
Big Lots’ share price suffered a sharp drop in December when the company released its third quarter earnings results. The company reported a $9.5 million loss, deepened from a $6 million loss the prior year quarter. Net sales increased 1.6% to $1.15 billion, as comparable store sales decreased 2.5%.
Big Lots also plans to close its wholesale operations by the fourth quarter of fiscal 2013, and announced its plan to close its Canadian operations, which consists of 78 stores, two distribution centers and an office.
The share price was also affected by its update of its fiscal 2013 annual guidance for adjusted income from continuing U.S. operations to between $2.40 and $2.55 per diluted share, from the previous forecast of $2.80 to $3.05. Canadian operations were expected have a fiscal 2013 net loss in between $0.15 to $0.15 per diluted share.
Big Lots’ 10-year revenue and earnings history:
Big Lots is trading near several three year lows: its share price, its P/E at 10, its P/B at 1.98 and its P/S at 0.29.
Calpine Corp. (CPN)
Glenview purchased a stake of 6,145,659 shares of Calpine Corp. in the first and second quarters of 2013 at average prices of $19 and $21 a share, respectively. In the third quarter, it reduced the position by 1,718,700 shares at an average price of $20. The holding represents 0.72% of the portfolio.
Calpine’s share price has declined 6% from Glenview’s average buy price to $18.70 a share, which is 2.7% above its 52-week low.
Calpine is a power company producing the most electricity of any independent power producer in America, serving 20 states and Canada.
In the third quarter, the company reported $306 million of net income, down from $437 million the previous year, a 2.7% increase in operating revenues to $2.05 billion, and a 20.1% increase in adjusted free cash flow to $556 million. The results were driven by a higher commodity margin due to increased regulatory capacity payments, new contracts and higher contribution from hedges.
Calpine has been active in acquisitions in recent years, absorbing Bosque Energy Center in 2012, and a 1,050 megawatt power plant Guadalupe Power Partners in Texas in a deal set to close in first quarter 2014.
Calpine’s 10-year revenue and earnings history:
The company trades at a P/B ratio of 2.19 and P/S ratio of 1.36, both near a one-year low. Its P/E is 39.4.
J.C. Penney (JCP)
Glenview holds a total of 12,370,487 shares of J.C. Penney, acquired from third quarter 2012 to third quarter 2013 at an average buy price of $19.57. The holding is 0.92% of the portfolio.
J.C. Penney’s price has retreated 62% from Glenview’s average buy price to $6.42 a share, with is 3.4% from its 52-week low.
In the company’s third quarter it reported that net sales decreased to $2.78 million from $2.93 million in the prior-year quarter, and a net loss of $457 million, as comparable store sales declined 4.8% and online sales rose 24.5%. The company held $1.23 billion in cash, and total debt of $5.6 billion.
On Jan. 15, the retailer announced a “strategic initiative to advance turnaround,” which included closing 33 underperforming stores to focus on higher growth potential opportunities, expecting to incur $65 million in annual cost savings.
J.C. Penney’s price, P/B at 0.56 and P/S at 0.13 are all near their respective 10-year lows.