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A Portfolio Position Upgrade: FSC
An undervalued stock offers some short-term potential
Fifth Street Finance (FSC), a stock that I’ve mentioned several times in the past, was upgraded on Wednesday by Stifel Nicolaus from Hold to Buy. The upgrade was based on valuation, dividend yield and earnings growth. The research note is restricted and cannot be reproduced here.
Another positive for FSC, and BDCs in general, was the recent decision of the Financial Accounting Standards Board (FASB) to back away from a proposal to require fair value accounting for valuing loans, as opposed to the currently used accrual method.
We have owned this stock since February 2010. While the double digit yield was a big driver in establishing the position, we also felt it was undervalued. In my view, FSC will likely offer more share price appreciation on a short-term basis.
Disclosure -- QES portfolios and the author own the following positions: FSC.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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