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Aluminum Demand and Pricing Poised to Recover from Great Lows - Excellent News for Stanley Druckenmiller

March 06, 2014 | About:
Patricio Kehoe

Patricio Kehoe

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Over the past days hedge funds have been filing their form 13-F, which is a quarterly report of equity holdings by filed institutional investment managers with at least $100 million in equity assets under management, as required by the United States Securities and Exchange Commission (SEC). In this article, let´s concentrate in one particular hedge fund and try to see the principal holdings in its portfolio. I will look into Duquesne Family Office LLC from Stanley Druckenmiller, who closed his Duquesne Capital Management hedge fund in 2010, returned capital to investors, and converted it into a family office managing his personal fortune.

Recently the family office reported its equity portfolio, as at the end of last year. The total value of the portfolio amounted to $1.5 billion, up from $0.84 billion disclosed at the end of the previous quarter. Consequently, the fund's total return was 77% in the last quarter. The filing revealed that at the end of last year, the fund added 21 new positions to its equity portfolio, and sold out of seven other companies. The top 10 portfolio holdings as of the end of the quarter represented 53%. The largest changes from previous 13-F fillings are in the telecom sector (5%) followed by materials (1.4%).

In this article, we have selected three companies, in which the fund holds the largest stakes, in terms of market value.

The first on the list is Alcoa Inc. (AA), in which Duquesne disclosed a $42.5 million stake with over 4 million shares. Alcoa is one of the world's largest producers of primary aluminum as well as one of the world's largest suppliers of alumina, an intermediate raw material used to make aluminum products for a variety of end-markets. Alcoa is involved in every step of the aluminum-production process, from bauxite mining to the sale of specialized aluminum products. The company is focusing in the aerospace and auto markets. The company, which makes aircraft wings and fasteners, is seeing how airline fundamentals are improving with a projected air travel demand rising and a roughly 10% in the growth of the aerospace market and 12% for large commercial aircraft segment.

With respect to the auto industry, vehicle sales are high in the last 12 months. But looking forward, Aluminum represents the second largest-volume component material in automotive vehicles and is expected to double by 2025. The firm's largest competitor includes Aluminum Corporation of China Limited (ACH). Hedge fund gurus have also been active in the company. Gurus like Steven Cohen (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio) have added it in fourth quarter 2013.

Johnson & Johnson (JNJ) comes in next, the fund owning over 235,000 shares, worth $21.5 million. The company operates in a highly competitive industry, including companies such as Novartis AG (NVS) and Pfizer Inc. (PFE). The company reported earnings per share increased by 32.5% compared to the same quarter one year prior, and has demonstrated a pattern of positive earnings per share growth over the past two years. The company returns cash to investors, and its current dividend yield is 2.83%, which is considered quite enough to protect the purchasing power.

In The Boeing Company (BA) Duquesne disclosed ownership of over 99,200 shares, worth $13.5 million. It is the largest aircraft manufacturer in the world, and one of the largest aerospace and defense companies. The company reported earnings per share increased by 25.8% compared to the same quarter one year prior. Its bottom line increased by $5.97 versus $5.12 in the past year. The market expects for the current year an improvement in earnings to $7.39.

Final Comment

In the next chart we can appreciate the stock’s price movements. Johnson & Johnson and Boeing have an upward trend for the five-year period.

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All of the stocks still have good upside potential despite the fact that they have already risen in the past year. The three stocks are certainly attractive for fundamental investors and make it a worthy investment for Duquesne’s portfolio. In future articles we are going to calculate the intrinsic value of these stocks to determine if they are a good buy in terms of valuation.

Disclosure: Patricio Kehoe holds no position in any stocks mentioned.

About the author:

Patricio Kehoe
A fundamental analyst at Lone Tree Analytics

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