Muhlenkamp & Co. Inc., the investment firm founded by Ronald Muhlenkamp (Trades, Portfolio) in 1977, released its portfolio for the fourth quarter of 2022 last week.
While he is still acting as the firm’s chairman, Muhlenkamp passed most operational responsibilities on to his sons in 2019. With the goal of maximizing returns through capital appreciation, as well as income from dividends and interest, his Wexford, Pennsylvania-based firm typically invests in highly profitable companies trading at a discount. When picking stocks, it seeks companies with strong balance sheets and high returns on equity. The firm believes that, over time, stock prices reflect the companies’ underlying value and that the long-term business of investing offers a higher chance of profitability and reliability.
In his quarterly letter to shareholders, Muhlenkamp noted that “inflation is likely to remain higher than the last decade” and “the U.S. is likely to enter a recession in 2023.”
“Our portfolio reflects that view of the immediate future,” he wrote. “We continue to hold unusual amounts of cash as markets have not priced in a recession, a crisis or higher inflation for a long period of time. We have significant investments in energy companies both because of the investment cycle of the energy industry and because commodities often do well in inflationary environments. Our health care investments should be relatively indifferent to a recession in terms of their revenues and earnings.”
Keeping these considerations in mind, the firm disclosed in its 13F filing it entered two new positions, sold out of one stock and added to or trimmed a slew of other existing holdings during the three months ended Dec. 31. The most notable trades included new positions in the ProShares Short QQQ -1x Shares (PSQ, Financial) exchange-traded fund and Exxon Mobil Corp. (XOM, Financial), a boost to the Bristol-Myers Squibb Co. (BMY, Financial) holding and the divestment of Direxion Daily S&P 500 Bear 1X Shares ETF (SPDN, Financial). Further, the Tenneco Inc. (TEN, Financial) investment was dissolved due to an acquisition.
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
ProShares Short QQQ -1x Shares
The firm picked up 904,875 shares of the ProShares Short QQQ -1x Shares (PSQ, Financial) ETF, dedicating 5.64% of the equity portfolio to the position. The stock traded for an average price of $14.26 per share during the quarter.
It is now Muhlenkamp’s fifth-largest holding.
The ETF, which seeks daily investment results, before fees and expenses, which correspond to the inverse of the performance of the Nasdaq 100 Index, was trading around $12.79 on Thursday.
The stock has fallen nearly 14% year to date.
The 14-day relative strength index of 32.42 indicates the ETF is close to oversold levels.
Muhlenkamp is currently the only guru invested in the ETF with 0.76% of its outstanding shares.
Exxon Mobil
Muhlenkamp’s firm invested in 1,952 shares of Exxon Mobil (XOM, Financial), allocating 0.09% of the equity portfolio to the holding. During the quarter, shares traded for an average price of $107.14 each. He previously sold out of the stock in 2010.
The Irving, Texas-based energy giant has a $469.49 billion market cap; its shares were trading around $115.02 on Thursday with a price-earnings ratio of 8.67, a price-book ratio of 2.41 and a price-sales ratio of 1.19.
The GF Value Line suggests the stock is fairly valued currently based on its historical ratios, past financial performance and analysts’ future earnings expectations.
At 86 out of 100, the GF Score indicates the company has good outperformance potential on the back of high ratings for profitability, growth and financial strength and moderate ranks for GF Value and momentum.
Of the gurus invested in Exxon Mobil, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest stake with 0.11% of its outstanding shares. The T Rowe Price Equity Income Fund (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Ray Dalio (Trades, Portfolio)’s Bridgewater Associates also have significant positions.
Bristol-Myers Squibb
The firm increased the Bristol-Myers Squibb (BMY, Financial) position by 0.15%, buying 197 shares. The transaction had an impact of 0.01% on the equity portfolio. The stock traded for an average per-share price of $75.40 during the quarter.
It now holds 128,950 shares total, occupying 3.93% of the equity portfolio. GuruFocus data shows Muhlenkamp has gained 13.24% on the investment so far.
The biopharmaceutical company headquartered in New York, which develops therapeutics for cardiovascular diseases, cancer and immune disorders, has a market cap of $153.72 billion; its shares were trading around $72.30 on Thursday with a price-earnings ratio of 24.51, a price-book ratio of 4.70 and a price-sales ratio of3.37.
According to the GF Value Line, the stock is fairly valued currently.
The GF Score of 91 means the company has high outperformance potential. While it received high ratings for four of the criteria, the GF Value rank was more moderate.
With a 1.04% stake, PRIMECAP Management (Trades, Portfolio) is Bristol-Myers’ largest guru shareholder. Other top guru investors include Dodge & Cox, Richard Pzena (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
Direxion Daily S&P 500 Bear 1X Shares
With an impact of -5.21% on the equity portfolio, Muhlenkamp’s firm dumped all 652,921 shares of the Direxion Daily S&P 500 Bear 1X Shares (SPDN, Financial) ETF. The stock traded for an average price of $16.46 per share during the quarter.
It was previously the firm’s fifth-largest holding. GuruFocus data shows it gained an estimated 1.60% on the investment over its brief lifetime.
The ETF, which seeks daily investment results, before fees and expenses, of 100% of the inverse performance of the S&P 500 Index, was trading around $15.42 on Thursday.
The stock has fallen around 7% year to date.
The 14-day relative strength index of 36.28 indicates the ETF is neither overbought nor oversold.
There are currently no gurus invested in the ETF.
Tenneco
Impacting the equity portfolio by -3.96%, the firm’s 475,114-share holding of Tenneco (TEN, Financial) was dissolved after it was acquired by Apollo Global Management Inc. (APO, Financial) in November. Shares traded for an average price of $19 each during the quarter.
GuruFocus says Muhlenkamp’s firm gained approximately 77.20% on the investment.
According to the terms of the all-cash deal, Apollo paid $20 per share for the Lake Forest, Illinois-based company, which manufactures automotive parts.
Other gurus who benefited from the acquisition included Prem Watsa (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Simons’ firm.
Additional trades and portfolio performance
During the quarter, Muhlenkamp’s firm also increased its holdings of McKesson Corp. (MCK, Financial), the Alerian MLP ETF (AMLP, Financial) and Berkshire Hathaway Inc. (BRK.B, Financial) as well as curbed its positions in EQT Corp. (EQT, Financial), Occidental Petroleum Corp. (OXY, Financial) and Rush Enterprises Inc. (RUSHB, Financial), among others.
Nearly half of the firm’s $236 million equity portfolio, which is composed of 27 stocks, is invested in the energy and health care sectors.
According to the firm’s website, the Muhlenkamp Fund returned 2.88% in 2022, outperforming the S&P 500’s -19.44% return.
