Six to seven weeks after the end of each quarter, hedge funds are required to file 13Fs with the SEC detailing many of their long equity positions as of the end of the quarter. While this information is a bit old by the time it is made public, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy). Another way to use the information found in 13Fs is to review the top picks of various hedge fund managers, including their favorite stocks in different industries or sectors, and then do more research on any stocks which seem like particularly good values. Here are five of the top services stock picks from billionaire and Tiger Cub Andreas Halvorsen’s Viking Global (or see the full list of stocks Viking reported owning):
Halvorsen’s top pick was Time Warner Inc (NYSE:TWX), the media and entertainment company whose brands include CNN, HBO, and Warner Brothers. Time Warner’s stock is up over 50% in the last year, and in fact in the fourth quarter of 2012 net income increased at a similar rate versus a year earlier. At a trailing P/E of 19, the company will need more earnings growth though it is planning to spin out its magazine business. Many hedge funds like to invest in spinout situations because management of the new companies becomes better able to focus on operations, often increasing shareholder value (read more about investing in spinouts).
See three more of Halvorsen’s services picks:
Credit card industry market leader Visa Inc (NYSE:V) was another of the fund’s ten largest holdings with a position of 3.5 million shares at the end of December. In its most recent quarter, Visa experienced double-digit growth rates of both revenue and earnings compared to the same period in the previous fiscal year. However, future growth expectations are high and the forward P/E is 19 even after accounting for earnings growth the next two years. Fisher Asset Management, managed by billionaire Ken Fisher, reported owning 4.9 million shares in its own 13F (check out Fisher’s stock picks).
H&R Block, Inc. (NYSE:HRB) was another of Halvorsen’s favorite services stocks. The tax prep services company is up 68% in the last year, yet still pays a dividend yield of about 3% going by recent dividend levels. Obviously H&R Block’s business is highly seasonal, and this year it has been on the receiving end of a bold advertising campaign by Intuit Inc. (NASDAQ:INTU)’s TurboTax accusing the company of advertising for employees with no tax experience. Donald Yacktman’s Yacktman Asset Management had 8.6 million shares of H&R Block in its portfolio at the end of December.
Viking Global initiated a position of 5.9 million shares in Las Vegas Sands Corp. (NYSE:LVS). The casino resort company’s revenues were up 20% last quarter compared to the fourth quarter of 2011, but despite that net income was flat. The trailing and forward P/Es are 29 and 17, respectively, suggesting that even after significant increases in earnings Las Vegas Sands will have to maintain steady earnings growth. Lee Ainslie’s Maverick Capital cut its holdings by 11% but still owned 2.2 million shares of the stock (research more stocks Maverick owns).
Disclosure: I own no shares of any stocks mentioned in this article.
