Monday, June 18, 2012
Insider Hedge
By Alexander Green June 18, 2012
Recent volatility in the stock market has made life difficult
for most equity fund managers. Reports show investors are yanking billions out
of equity funds and fleeing to alternative assets.
But that’s a good thing for alternative asset managers like Och-Ziff
Capital Management (NYSE: OZM).
Founded in 1994, Och-Ziff is one of the world’s largest
institutional alternative asset managers (think hedge funds), with $29.8
billion in assets under management.
OZM’s funds seek to generate consistent, positive returns across
all market cycles with low volatility compared to equity funds. Mutual funds
are generally tied to a particular asset class, investment approach, or
geographic region. Hedge funds are not. They can go long or short, invest in
stocks, bonds, commodities, or currencies, and are free to invest in any market
anywhere in the world.
Hedge fund managers are also able to take highly concentrated
positions. That means they don’t have to diversify into dozens or hundreds of
investments, just to satisfy some requirement in the prospectus. If a hedge
fund manager sees only 10 great opportunities at a given time, he needn’t
invest beyond those 10. By comparison, mutual funds are required to diversify
broadly. That’s one reason their returns often suffer by comparison.
Och-Ziff Capital, however, is coming through a tough few
quarters. The stock is now selling for practically half of its 52-week high.
One person taking advantage of that is CEO Daniel Och. This month alone, he has
purchased a half million shares, an investment of more than $3.4 million.
Managing Director David Windreich and Chief Legal Officer Jeffrey Blockinger
have been big buyers over the last six months, too. It’s worth noting that the
insiders own over a third of the outstanding shares here.
They know that Och-Ziff is likely to earn $1.30 a share this
year. That makes the stock awfully cheap at less than six times prospective
earnings. Plus, the stock is currently yielding an appetizing 5.5%.
This is a depressed stock with great trading potential and a
secure dividend.
***Action to Take***
Buy Och-Ziff Capital Management (NYSE:
OZM) at $7.75 or better. And place a sell stop at $6 for protection.
Speculators may want to take a look at the September $7.50 calls. But don’t pay
more than $0.65.
Current Portfolio:
Stock: Och-Ziff Capital Management
Symbol: (NYSE: OZM)
Current Price: New
Comments: Buy at $7.75 or better. Set sell stop at $6.
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