How Hedge Fund Manager Michael Messner Plays the Mid-Caps
The New York-based Seminole Capital Management, led by Michael Messner, is a hedge fund with an equity portfolio worth almost $1.6 billion, according to its latest 13F filing. Due to the fact that hedge fund sentiment has proven to be a market-beating strategy if you know where to look (see how we returned 47.6% in our first year), we’ll run through Seminole’s five largest mid-cap stock picks at the end of the third quarter.
Seminole reported a $41.7 million position in Unum Group (NYSE:UNM), a company with an $8.3 billion market cap. Overall, the fund holds some 1.4 million shares of the company, up by 73,000 shares over the quarter. At the beginning of October, Unum declared a dividend worth $0.145 per common share. In the second quarter of the year, the company posted a slight increase in its net income per share, which totaled $0.82. The stock of Unum has increased by 53% since the beginning of the year.
The next on the list comes Axis Capital Holdings Limited (NYSE:AXS), in which Seminole holds some 909,100 shares, worth $39.4 million. In the second quarter, Axis Capital posted a surge in its earnings to $375 million, or $3.19 per diluted common share, from $290 million ($2.31 per share) in the same period of 2012. The company bought back $5.1 million of its common shares, for an aggregate value of $228 million, and it has $409 million of authorization for the repurchase until December 31, 2014.
Seminole also holds a $33.6 million stake in US Airways Group Inc (NYSE:LCC), the position amassing almost 1.8 million shares. The fund started its exposure in the $3.8 billion US Airways during the third quarter, joining longer term investors like David Tepper and Donald Chiboucis. US Airways is currently in the process of merging with American Airlines, which may be blocked by the U.S. Department of Justice.
For the third quarter of the year, US Airways revealed a significant boost in its pretax profit, which surged by 90% on the year, to $367 million. "These outstanding results are occurring as our teams continue intensive integration planning work in preparation for our merger with American Airlines. Our hard working team members, along with their colleagues at the American, remain committed to building a combined airline that can compete in the global marketplace. We are eager to present our case and are grateful for the enthusiasm and support our merger continues to receive," US Airways quoted Chairman and CEO Doug Parker in a press release.
In Partnerre Ltd (NYSE:PRE), Seminole reported owning approximately 286,600 shares, with an aggregate value worth around $26.2 million. In the first nine months of this year, PartnerRe posted a net income of $392.2 million, equivalent to $5.93 per share, down from $1.02 billion, or $15.19 per share disclosed for the same period of last year. The decline in profit was on the back of net after-tax realized and unrealized losses on investments worth $219 million. During the third quarter, PartnerRe bought back around 1.2 million common shares for $103 million. The company still has 5.9 million shares in terms of its current repurchase authorization, and has seen a few big-time hedge funds buy in this year (see who else is bullish on PartnerRe).
With a market cap of $5.7 billion, Embraer SA (ADR) (NYSE:ERJ) is the fifth-largest mid-cap pick in the equity portfolio of Seminole. The fund disclosed a 15.9 million position, which contains around 490,200 shares. The aircraft manufacturer recently introduced its Lineage 1000E, an ultra-large executive jet for up to 19 passengers with various features that enhance comfort and flight quality. The company delivered a total of 44 jets during the third quarter, out of which 19 represented commercial aircrafts, and 25 executive jets. The order backlog of the company amounted to $17.8 billion at the end of the third quarter.
Disclosure: I am long LCC