It’s that time of year when hedge funds and their associated gurus — known as the “smart money” — put out their 13F filings, letting us know what interesting moves have been made in the world of the wealthy.
This isn’t always a list that investors should follow. Just because the smart money takes a position doesn’t mean you should.
For starters, the smart money has way more money. That means they can afford to take flyers, even large ones, because if only one of their long-shots pays out it will make up for any losers they have.
The other issue is that some of the more arrogant smart money may take positions in certain stocks strictly out of some egotistical revenge scheme. Did Carl Icahn really take a position in Herbalife (HLF) because he sees potential in the stock, or to stick it to short-seller Bill Ackman?
Anyway, I prefer to look for the oddball moves, or stakes being taken in companies below the radar. Still, there are plenty of big names that the smart money bet on.
Smart Money: Carl Icahn
One of my favorite hedge fund managers is Carl Icahn, who opened a 100 million share position in Freeport-McMoRan (FCX). Although it’s a diversified natural resource company, I think Icahn is making a play on copper and oil. Freeport had purchased McMoRan Exploration in 2013, but the deal had tons of debt. Based on his other commodity company moves, Icahn will likely push the company to slash costs first. Then, at some point, copper and oil prices are going to come back, and that’s when he’ll cash out.
He also took a position in AIG (AIG) in order to pressure the company to spin off its life insurance and mortgage units into public companies. He says it would give shareholders a lot of cash and remove regulatory burdens from the company. It’s the mortgage unit that Icahn especially wants to get rid off, due to onerous oversight thanks to the Dodd-Frank act.
Smart Money: David Einhorn
David Einhorn’s Greenlight Capital made some very interesting moves. He increased his Apple (AAPL) stake by more than 50%, which is a vote of confidence if I ever saw one. He also increased his holdings in Michael Kors (KORS) by some 3 million shares. I find this somewhat surprising because retail is so darn fickle, and even a luxury retailer isn’t immune from whimsical consumers. Still, with the stock off nearly 50% this year, he probably sees a value play here.
He appears to have finally closed out his short on St. Joe Company (JOE). A couple of years back he got into a public feud with another fund that was long. Despite presenting a compelling short thesis, the stock never really moved much.
Einhorn also took a stake in Consol Energy (CNX), which I found to be very odd. This is a coal play. There couldn’t be a worst time to be in coal, and perhaps that’s the point. The government hates coal and is trying to kill coal. The theory, I guess, is that Einhorn believes coal won’t die, or a new administration will comes into power and reverse the trend.
Smart Money: Bill Ackman
Bill Ackman took a 7.5% stake in Mondelez (MDLZ). I see this as classic Buffett, but with a twist. Buffett likes the snacks because they have always been a repeat purchase play by consumers. Ackman likes them because there are always production efficiencies that can be wrung out of a massive snack food operation.
Ackman noted that MDLZ’s sales volume was disappointing because it was declining, although it was offset by increases in the prices of these products. That, coupled with consolidating and streamlining of the supply chain, should help this situation to improve dramatically.
Then there’s the cozy relationship he has with smart money peers Warren Buffett and private equity firm 3G Capital. Mondelez first spun off Kraft Foods, which then merged with H.J. Heinz in a deal led by Buffett and 3G.
How much do you want to bet that once Ackman bumps up Mondelez’s margins and sees big cost savings that he pushes for a sale to Buffett, 3G and/or they merge it with H.J. Heinz?
Now that would truly be a smart money move.
As of this writing, Lawrence Meyers was long AAPL.