In their Small Cap model, Gator Capital invests in 30 small cap companies. The model is structured so that each stock purchased is looked at in terms of a partial business ownership rather than just an equity investment. Gator Capital believes that the best businesses to own are those with attractive business models, strong competitive advantages and management teams that think like the company’s shareholders.
The model’s top holding is Brigham Exploration Co (NASDAQ: BEXP). BEXP uses 3-D seismic imaging technology to assist in their domestic, on-shore exploration and development activities. In 2008 the company’s sales rose to $127.8 million, up from the prior year’s $120.6, but in 2009 they dropped to $70.3 million. During the first three quarters of 2010 BEXP had reported $114.1 in sales for the year. The company dropped its total liabilities from $357.7 million in 2008 to $234 million in 2009, but they rose again during the third quarter of 2010 when they were a reported $447.8 million. This occurred after BEXP offered $250 million in notes maturing in 2018 to fund a tender offer on notes maturing in 2014.
Another top holding in the model is Newcastle Investment Corp (NYSE: NCT). NCT owns a diverse portfolio of secured commercial and residential real estate debt. Their interest income fell from $468.9 million in 2008 to $361.9 million in 2009 and their net revenues fell from $410.2 million in 2008 to $389.1 million. Their price to earnings ratio is much lower than many competitors. The company has successfully reduced its total liabilities, dropping them from $5.9 billion in 2008 to $5.2 billion in 2009, then to $4.4 billion during the third quarter of 2010. In 2008 NCT’s shareholder equity was $-2.4 billion but had risen to $ -1.6 billion in 2009.
