Investor's guide to Blue Ridge Capital's positions in 3Q 2013

Part 8
Investor's guide to Blue Ridge Capital's positions in 3Q 2013 (Part 8 of 11)

Why Blue Ridge Capital sold its Owens Corning position in 3Q13

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According to 13Gs Blue Ridge Capital filed last month, the hedge fund disclosed new positions in Zulily (ZU) and PBF Energy (PBF). The filings stated that Blue Ridge currently owns 6.05% in Zulily, with 799,811 shares, and a 7.82% stake in PBF, with 3,095,000 shares.

A November 13G filing showed that Blue Ridge increased its position in Avis Budget Group (CAR) and at present owns a 6.17% stake, with 6,613,700 shares.

For more information on Blue Ridge Capital and its investment strategy, please see the last part of this series.

Blue Ridge Capital’s top new buys in 3Q 2013 per its 13F filing were American Homes 4 Rent (AMH), Tesla Motors Inc. (TSLA), Cliffs Natural Resources (CLF), and BlackBerry Ltd. (BBRY). The hedge fund exited its positions in Owens Corning (OC), Equinix Inc. (EQIX), and Realogy Holdings Corp. (RLGY).

Blue Ridge Capital’s two largest stock holdings are Priceline.com Inc. (PCLN) and American International Group Inc. (AIG), which account for 4.88% and 4.52% of the hedge fund’s portfolio, respectively.

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Why did Blue Ridge sell Owens Corning (OC)?

Blue Ridge sold a 3.77% position in Owens Corning, a global producer of glass fiber reinforcements and other materials, in 3Q 2013. Blue Ridge had initiated a position in the company in 2Q 2012.

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In 2Q 2013, the company’s earnings missed analyst estimates. The company said in 2Q 2013 that it expects market demand for roofing to be flat for the full year but foresees stronger volumes in the second half. Volume for the insulation business was expected to be stronger during the second half of the year on more residential construction and higher prices.

In 3Q 2013, the company delivered a profit, but results were below analyst estimates. Owens Corning reported net earnings of $51 million, or $0.43 per diluted share, compared to $44 million, or $0.37 per diluted share, in 2012. The company’s Roofing business sustained strong margin performance. The Insulation business achieved its ninth consecutive quarter of EBIT improvement and was once again a positive contributor to the company’s earnings. Composites EBIT declined sequentially due to manufacturing performance and lower volumes.

Based on the year-to-date performance, the company has maintained its outlook of at least $100 million of adjusted EBIT growth. Roofing industry shipments are expected to be down mid-single digits, primarily on lower storm activity. In Insulation, expectations for continued growth in U.S. residential new construction, improved capacity utilization, and higher pricing for the company remain unchanged. In Composites, full-year EBIT is expected to be consistent with last year, as manufacturing challenges in the third quarter have been largely resolved.

The company’s peers include Beacon Roofing Supply (BECN), Carlisle (CSL), and Masco (MAS). With the improvement in housing market and an increase in U.S. construction spending, analysts expect the company to see positive free cash flow this year for the first time since 2010. The stock is also a part of SPDR S&P Homebuilders (XHB) ETF, which was up 25% in 2013.

Owens Corning is a global producer of residential and commercial building materials (including insulation and roofing shingles), glass-fiber reinforcements for products such as cars, boats, wind blades, and smart phones, and engineered materials for composite systems. Owens Corning is a market-leading innovator of glass-fiber technology, with sales of $5.2 billion in 2012 and approximately 15,000 employees in 27 countries on five continents.

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