A quick look at institutional buying in June has shown that "sell in May and go away" may not apply to you...
While many funds pull away from the markets during the summer lull (as my colleague David Sterman outlined in May), a subset of billionaires has continued to build new or existing positions in stocks surrounding the red-hot energy sector -- and big ones, at that.
Billionaire fund managers Leon Cooperman, Barry Rosenstein and Mario Gabelli have been putting their buying power to work in the past few weeks, according to 13G and 13D filings submitted to the SEC in June. The regulator requires these documents to be submitted when an investment firm has acquired greater than 5% of a stock's outstanding shares, which is considered significant ownership in the SEC's eyes.
These gurus have histories of successful stock-picking and have now focused their buying on companies with strong ties to the commodity sector. Let's take a closer look at the stocks they're targeting.
|Nordic American Offshore (NYSE: NAO)|
Last week, Cooperman of Omega Advisors said he had acquired about 4.9 million shares of NAO, which owns and operates offshore energy vessels known as PSVs (platform supply vessels). At current prices, his investment amounts to just shy of $94 million, or 21.8% of total common shares.
Nordic American is a young issue, debuting on the NYSE on June 11 after being established last October. However, its first full quarter of operations in 2014 revealed strong revenue of $13.1 million, supported by its fleet's average daily rate of $25,700 per vessel. With plans to increase that fleet of six to 10 PSVs by the third quarter of 2015 (with average lease contracts being two years per vessel), revenue is expected to both grow and, more importantly, be sustainable.
In addition, NAO pays a quarterly dividend of $0.45 -- that equates to a monster yield of 10.6% at today's prices. Growth and value investors, take heed.
|Civeo Corp. (NYSE: CVEO)|
Rosenstein is head of Jana Partners, a value-oriented, event-driven hedge fund that started in 2001 with a large backing from none other than Leon Cooperman. On June 10, Rosenstein revealed an 11.5% activist stake in CVEO, amounting to a $312 million investment at current prices.
Similar to NAO, Civeo began trading on the NYSE this month, having split from parent company Oil States International (NYSE: OIS) in May. CVEO was the accommodations division of OIS, providing workforce lodging to natural resources employees in Canada, Australia, and the U.S. With over 22,000 rooms under management, CVEO caters to a large client list, including Exxon Mobil (NYSE: XOM), Fluor (NYSE: FLR) and Vale (NYSE: VALE).
Rosenstein has big ideas for CVEO, planning to increase shareholder value through shake-ups in management, acquisition strategies, and a possible conversion to REIT (real estate investment trust) status in the future. Analysts at Susquehanna are hopeful as well, pegging CVEO with a "positive" rating on June 3.
|Magnetek (Nasdaq: MAG)|
With an allocation of less than $3.5 million, Gabelli's investment in Magnetek may seem small next to Cooperman's and Rosenstein's stakes. However, given Magnetek's small size (its market cap is only $76 million), Gabelli's purchase gives him 4.6% ownership of Magnetek's common stock. Through his family of funds, GAMCO Investors, Gabelli owns an aggregate 10.3% of the common stock of MAG.
Magnetek manufactures digital power and motion control systems that are used in applications ranging from energy delivery to hydraulics to mining. Unlike NAO and Civeo, Magnetek has been around for three decades, trading above $240 at one point. Now at about one-tenth of that, Gabelli is most likely looking to build a position before a potential run-up (or even a possible buyout offer).
MAG has been given positive news this summer, receiving certifications for two of its transmitters to be used in hazardous locations where explosions may occur or where flammable gases may be present. The company thinks the certifications will have positive implications in oil and gas, mining, and petrochemical operations.
Risks to Consider: NAO and Civeo are young companies, and Magnetek is a small firm. These qualities make these picks more speculative, so dial down the size of your investment if you're looking for some exposure but want to manage risk more effectively.
Action to Take --> Browsing the latest 13G or 13D filings from well-known investors can help you to uncover huge growth opportunities, and seeing successful managers pile in after an IPO or near a company's trading lows can definitely add to the allure. Of these three stocks, NAO is the standout pick, with CVEO and MAG the runners-up.