After closing nearly half of its positions in the final months of the year, billionaire Michael Dell (Trades, Portfolio)âs personal hedge fund is likely looking for a few good buys.
MSD Capital, with offices in New York, Florida and California, does all of Dellâs stock-picking. In fact, the firm was created in 1998 for the sole purpose of managing the assets of one of world's richest people.
Wesco Aircraft Holdings Inc. (WAIR, Financial) made Forbes list of one of the best small companies in America in 2013. But, after four years, MSD Capital pulled its 17% stake in the California-based airline supply management company. MSD exited the position for an estimated loss of 54% over its four-year investment.
That now leaves Dellâs ultra-concentrated portfolio worth $63 million with positions in just three stocks.
All told, 60% of the portfolio is dedicated to the stock of restaurant franchise company Dine Brands Global Inc. (DIN, Financial), which owns thousands of eateries under the Applebeeâs and International House of Pancakes names.
The remaining 40% of portfolio space is evenly split beteween two companies. PVH Corp. (PVH, Financial) is a clothing provider that designs and markets brands like Tommy Hilfiger and Calvin Klein. Townsquare Media Inc. (TSQ, Financial) is an entertainment and media company that makes money from commercials through radio broadcasts and sales of internet-based ads.
MSD Capital is known for using value investment tools to ferret out securities available for less than their intrinsic value.
âExecution woesâ
Some investors lost hope in Wesco after it reported disappointing earnings in the final months of the year. It missed Wall Streetâs sales and earnings expectations.
Guru investorĂ Wallace WeitzĂ (Trades,Ă Portfolio) bought more shares of the company in the fourth quarter despite what he described as "execution woes."
âWescoâs current struggles are frustrating but we donât believe permanent, and weâve opted to use the stockâs volatility to lower our average cost by purchasing new shares,â Weitz wrote.
MSD saw an opportunity to buy Wesco in the second quarter of 2014. At one point, Dellâs investment firm owned more than 5.4 million shares, paying an average of just under $21 a share in the second quarter of 2014.
The firm exited the position after an estimated loss of 54% for an average sale price of $8.29 a share.
Westco stock was up almost 2% to $9.78 a share in early Thursday trading. The Peter Lynch chart suggests it is undervalued with the median at $11.80 a share.
Wesco Aicraft
Wesco has been struggling after years of solid earnings and revenue growth. Its market cap is reported at $970 million after reaching $1.9 billion in 2013.
The company lost momentum around 2014. Operating margins, for example, peaked at over 23% in 2010. In 2015, however, Wesco reported a margin of -13.78%. The company has also seen a decline in revenue per share over the last year to $14.48 per share after two consecutive years of revenues at more than $15 per share.
Earnings per share also hit an all-time low in 2017 with a loss of $2.40 per share compared to the prior yearâs 93 cents per share. In 2015, the company also reported a loss of $1.60 per share.
GuruFocus rates the company 4 out of 10 in financial strength and 6 of 10 in profitability and growth. Cash and cash equivalents stood at $62 million in 2017 compared to $77 million in the prior year. There has been a reduction in its long-term debt.
