The "Monster" of Eton Park racks up gains in Hansen

Mon Mar 30, 2009

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Pete Gallo reports on how Eton Park's investments have paid off in recent months.

By Pete Gallo

If this remarkable investment tale were being described by the screenwriters of one of those 1960s rubber-suit Godzilla flicks from Japan, an appropriate title might be "The Monster of Eton Park." But there is nothing rubbery about the returns Eric Mindich's Eton Park Fund has posted recently, thanks to King Kong-sized sales of Monster Energy drink, distributed by soft-drink maker Hansen Natural.

Filings with the Securities and Exchange Commission show that Eton Park posted a recent gain in excess of $110 million in Hansen Natural, making the stock one of the most convincing portfolio wins so far this year.

Hansen's share price rose from a low of $21 in the fourth quarter to a hefty $37 as of mid-March, bucking the downward trend seen by many other makers and distributors of fizzy drinks across the globe. But what makes Hansen's recovery this year even more notable is that the Nasdaq-traded stock price in mid-March actually reached levels of near-parity with its former 52-week high of more than $38 set in April 2008 - something few stocks have done.

You have to hand it to Mindich's investment team for discerning Hansen's future profitability. SEC filings reveal that Eton Park held some 5.6 million shares in the soft-drink company as the stock bottomed out in December. Rather than engaging in panic selling, Eton Park seemed to embrace a kind of frantic buying, grabbing another 1.5 million shares in Hansen to bring its total to 7.15 million shares, for a 7.7% stake in the Corona, Calif., company.

It was a bold move, given the uncertainty Eton Park (and everyone else for that matter) faced in the markets in the final quarter of 2008. The firm wasn't betting on black but on a tide of red ink.

Mindich's team did more than doggedly dig in its heels. Eton Park capitalized on the buying opportunity and came out ahead - way ahead. At 7.15 million shares, the value of the Hansen position was poised to grow from $150.5 million from its fourth-quarter low to about $264.44 million as of mid-March.

Time to sell? Mindich's investment style doesn't suggest he is in Hansen for a quick flip - nor would that be wise, no matter how tempting. Eton Park is all about grabbing big stakes in banner names, with any luck ones that have gotten hammered by ephemeral market forces and sentiment, and that will become momentum plays as their value is realized.

Hansen certainly seems to have both momentum and value in its favor for the moment. In addition to enjoying solid results stemming from its energy-drink and juice sales, the company recently inked a deal with Mexican soft-drink distributor Grupo Jumex to bring Hansen's Monster drink south of the border (and into the resort areas of Baja and Cancun) to go head-to-head with reigning energy-drink king, Red Bull.

Analysts are bullish on distributors like Hansen, because for often smallish sums they can land distribution deals and then invade new markets at low cost. (Of course this can backfire too, as was the case in March, when shares of China Huiyuan Juice Group fell 40% in a single day in Hong Kong on news that a massive $2.4 billion deal with Coca-Cola was blocked on antitrust grounds. Luckily for Eton Park, the fund didn't have a stake in that deal.)

Eton Park's portfolio has another horse in the liquid-stimulant race: coffee, the other low-cost, high-margin consumable that many Americans can't seem to live without. Mindich's shop owns 2.75 million shares in coffee retailer Starbucks, filings with the SEC show.

Unlike Hansen, Starbucks has taken some serious lumps, and not of the sugar, since the onset of the recession. At the start of the third quarter, shares in the company were trading at about $16 but bled down to roughly $8, a low set near the end of 2008. But by tweaking coffee prices and garnering savings by laying off baristas and shuttering stores, Starbucks has once again bounced for Eton Park, which has held firm.

As of mid-March, the stock had risen to $11.50, following a relatively smooth upward trajectory. At 2.75 million shares, Eton Park's position in the coffee retailer was poised to grow in value to $31.6 million, a gain of roughly $10 million since Starbucks hit its December low.

Another round of $500 million in spending cuts, announced in March by Starbucks, may lift the stock further. Perhaps Mindich's investment team thinks they will; Eton Park recently added 700,000 shares to the portfolio, according regulatory filings.

Other notable large positions in the Eton Park portfolio include News Corp., Goodyear Tire & Rubber and Best Buy, as well as significant bets on gold and silver via exchange-traded funds.

ISSN: 2151-1845 / CDC10004H

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