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One of the mightiest investors of the ‘90s, Ken Heebner (Trades, Portfolio), saw potential in financial services, energy and some consumer cyclical stocks in the first quarter this year.
Highlights of his Capital Growth Management LP portfolio, disclosed Friday, included a stake in JPMorgan (JPM, Financial) as the biggest new buy. Although financials have populated more than a third of Heebner’s holdings since 2016, they reached 34.1% of stocks in the first quarter, a peak for records going back to 2009. The JPMorgan buy makes it his fourth-largest position in the sector, following Bank of America (BAC, Financial), Morgan Stanley (MS, Financial) and Citigroup (C, Financial), which collectively make up more than a quarter of the stock portfolio.
Bets on financials have been key to the resurgence of Heebner’s funds after they hit a rocky decade. The CGM Focus fund beat the index in 2017 with a return of 24.8% compared to 21.8%. A 45.6% return for the 12 months ended in October scored him first place in a Wall Street Journal contest.
S&P 500 Financial Sector chart:Â
The numbers represent the makings of a welcome comeback after the fund lagged with a 10-year annualized return of 0.3% versus 8.5% for the S&P 500. In 2008, his concentrated wagers made his CGM Focus Fund the best of the decade.
“Bank stocks were a significant driver of market performance early in the year based on the prospects of a more favorable regulatory environment and the possibility of upward inflation pressures,” Heebner wrote in a fourth-quarter letter.
Second, Heebner bought Diamondback Energy (FANG, Financial), one of three oil and gas companies he purchased in the first quarter. The added positions raised his portfolio’s energy weighting to 7.5% from 2.8%, the highest since the second quarter of 2011.
Headquartered in Midland, Texas, Diamondback focuses on the Permian Basin in West Texas and engages in horizontal drilling. In the past year, its stock soared 22% to $100.65 at close Friday.
Rounding out the five largest buys were travel and leisure companies: Wyndham Worldwide Corp. (WYN, Financial), Marriott International Inc. (MAR, Financial) and Hilton International Inc. (HLT, Financial).
The hotels replaced two stocks from the travel and leisure industry that he sold out of, Marriot Vacations Worldwide Corp. (VAC, Financial) and Melco Resorts and Entertainment Ltd. (MLCO, Financial). Though his selling in the sector reduced his positioning in consumer cyclical stocks to 20.5% from 25.5%, it remains his second most represented sector at 30.5% of the portfolio.
Heebner has sold in and out of the hotels in recent years. In the fourth quarter, he exited Marriott International and Hilton Worldwide. He closed a position in Wyndham Worldwide in the third quarter.
New buy details
Heebner purchased 648,000 shares, giving it 3.16% portfolio weight. The price averaged $113 in the fourth quarter.
JPMorgan Chase & Co. has a market cap of $387.67 billion; its shares were traded around $113.86 with a P/E ratio of 16.18 and P/S ratio of 3.92. The trailing 12-month dividend yield of JPMorgan Chase & Co. stocks is 1.91%. The forward dividend yield of JPMorgan Chase & Co. stocks is 1.96%.
Diamondback Energy (FANG, Financial)
Heebner purchased 405,000 shares of Diamondback Energy, giving it 2.27% portfolio space. The first-quarter share price averaged $126.
Diamondback Energy Inc. has a market cap of $12.21 billion; its shares were traded around $123.82 with a P/E ratio of 24.11 and P/S ratio of 10.07. The forward dividend yield of Diamondback Energy Inc. stocks is 0.39%.
Wyndham Worldwide Corp. (WYN, Financial)
Heebner purchased 420,000 shares of the company, giving it 2.13% portfolio weight. The stock’s price averaged $118 in the first quarter.
Wyndham Worldwide Corp. has a market cap of $11.15 billion; its shares were traded around $111.71 with a P/E ratio of 15.07 and P/S ratio of 2.31. The trailing 12-month dividend yield of Wyndham Worldwide Corp. stocks is 2.16%. The forward dividend yield of Wyndham Worldwide Corp. stocks is 2.35%. Wyndham Worldwide Corp. had an annual average earnings growth of 8.40% over the past five years.
Marriott International Inc. (MAR, Financial)
Heebner purchased 340,000 shares of the company, giving it 2.05% portfolio weight. The stock’s price averaged $140 in the first quarter.
Marriott International Inc. has a market cap of $49.9 billion; its shares were traded around $139.82 with a P/E ratio of 37.18 and P/S ratio of 2.33. The trailing 12-month dividend yield of Marriott International Inc. stocks is 0.95%. The forward dividend yield of Marriott International Inc stocks is 1.18%. Marriott International Inc. had an annual average earnings growth of 20.20% over the past five years.
Hilton International Inc. (HLT, Financial)
Heebner purchased 580,000 shares of the company, giving it 2.03% portfolio weight. The stock’s price averaged $82 in the first quarter.
Hilton Worldwide Holdings Inc. has a market cap of $25.09 billion; its shares were traded around $83.51 with a P/E ratio of 20.18 and P/S ratio of 3.0. The trailing 12-month dividend yield of Hilton Worldwide Holdings Inc. stocks is 0.71%. The forward dividend yield of Hilton Worldwide Holdings Inc. stocks is 0.72%.
See Ken Heebner (Trades, Portfolio)’s portfolio here.
