The large macro funds that bet on the economy are all down for the first half of the year.
These include major funds ran by billionaires Paul Tudor Jones and Louis Bacon. Others, like Dan Loeb and David Einhorn, have only generated returns in line with the market.
The S&P 500 was up 6% during the first half of the year. Loeb and his Third Point flagship fund returned 6% for the same period. And Einhorn’s Greenlight Capital was up just 7%.
However, one of the best performers was Larry Robbins’ Glenview Capital. His flagship fund was up about 11% as of early July. Robbins also happens to be the best fund manager of 2013, according to Forbes.
It just so happens that he also appeared at this year’s Delivering Alpha conference earlier this month.
Robbins said that he’s focusing on companies that can take on loads of debt while rates are still low. He then expects these companies to use that capital to buy back shares of their undervalued companies.
Robbins likens his theme to “playing cards face-up,” noting that valuations are the same as they were in 2007, but the cost of debt is around half what it was then.
Seems like a real no-brainer.
While Robbins made his case for HMOs at the Sohn Investment Conference earlier his year, he’s highlighted five new stocks that he’s buying for the second half of the year.
Here are the top 5 stocks for the second half:
No. 1 Stock For The Second Half: Flextronics International (NASDAQ: FLEX)
Flextronics is an electronic manufacturing servicer, which means it designs and builds circuit boards and flexible circuit fabrications. It has a lot of exposure to Asia, which accounts for over half its revenues. Given its beginning-to-end manufacturing and shipping capabilities, Flextronics is set to benefit from the rising demand for electronics.
On a forward P/E basis (based on next year’s earnings estimates), Flextronics trades as the cheapest of the five stocks listed. Its forward P/E is 10. One of the big reasons that Robbins likes Flextronics is that the company recently got approval from the Singaporean government to buy back up to 20% of its stock.
No. 2 Stock For The Second Half: HCA Holdings (NYSE: HCA)
HCA owns acute care hospitals, freestanding surgery centers, rehabilitation facilities and psychiatric hospitals. The big investment thesis for HCA is that with healthcare reform there will be a decrease in uninsured patients, leading to more paying customers for HCA. Shares trade at a forward P/E of 14, which is well below the majority of its hospital peers.
No. 3 Stock For The Second Half: Hertz Global Holdings (NYSE: HTZ)
The real story behind investing in Hertz is its planned spinoff of its equipment rental business, which will make it a pure play in the car rental market. With its leadership in market share, Robbins believes that Hertz can become a price leader by bringing back higher prices and not trying to undercut competitors.
He also believes that Hertz will get aggressive with buying back shares after the spinoff. The company expects to get around $2.5 billion in cash from its equipment rental spinoff, which is expected to be used toward its $1 billion share buyback plan.
No. 4 Stock For The Second Half: Thermo Fisher Scientific (NYSE: TMO)
Thermo Fisher is a scientific instrument maker. It offers a modest 0.5% dividend yield, but Robbins likes the company for its cheapness. He says sequestration pushed the stock down, but despite the fading of sequestration concerns, it’s yet to recover. Shares trade at a forward P/E ratio of under 16.
Thermo Fisher has a robust international presence and is focusing on China. It plans to generate over 25% of total revenues from Asia by 2016, up from just 10% in 2006. Thermo Fisher suspended its buyback program when it announced its acquisition of Life Technologies, but it could be poised to reinstate it as its cash flows continue to grow.
No. 5 Stock For The Second Half: Monsanto (NYSE: MON)
This is one of the more controversial companies in the market, but it’s one of the largest agricultural products companies in the world. It also offers the highest dividend yield of the five stocks, coming in at 1.5%.
Robbins has noted that Monsanto recently raised capital via a 50-year bond offering at a rate of only 3%. Thanks to this new capital, the company recently announced a $10 billion share buyback program, with $6 billion of that as accelerated. That $6 billion would be good enough to reduce its shares outstanding by 10%. Operationally, its focus is on increasing crop yields for farmers. It’s one of the best plays on the rising global population.
The five stocks above all have key opportunities to grow their earnings and enhance shareholder value by buying back shares. With this, and strength in their respective end markets, these stocks appear to be part 5 of the best stocks to own for the second half.
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