We track quarterly 13F filings from hundreds of hedge funds and other notable investors, including billionaire David Shaw’s large hedge fund D.E. Shaw. While one way to make use of this information is to compile 13Fs and use them to develop investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year), we also like to screen managers’ top picks according to a number of criteria, including stocks whose valuations represent low multiples of their earnings. Read on for our thoughts on D.E. Shaw’s five largest holdings as of the end of March in stocks with both trailing and forward P/Es of 13 or lower, or see the full list of D.E. Shaw’s stock picks.
While many hedge funds have been selling Apple Inc. (NASDAQ:AAPL) since the beginning of the year, D.E. Shaw increased its own holdings during Q1 to a total of 1.7 million shares. Apple Inc. (NASDAQ:AAPL) actually regained its place as the most popular stock among hedge funds during the quarter (find more of hedge funds’ favorite stocks). Lower gross margins have pulled the company’s earnings down, and markets are valuing Apple Inc. (NASDAQ:AAPL) as if they expect that trend to continue: even with the company’s large cash hoard and plans to begin a large repurchasing program the trailing P/E is 11.
Shaw and his team disclosed ownership of 3.1 shares of Marathon Petroleum Corp (NYSE:MPC) a fairly recent spinout of Marathon Oil’s downstream operations. Oil and gas refining and marketing companies are seeing very low earnings multiples in the current market, and Marathon Petroleum Corp (NYSE:MPC) is no exception with both its trailing and forward P/Es clocking in at 8. With Wall Street analysts expecting business to grow over the next several years, the five-year PEG ratio is 0.7; we think Marathon and its peers are well worth considering as potential value plays.
D.E. Shaw increased its stake in Exxon Mobil Corporation (NYSE:XOM) by 28% to a total of 2.7 million shares. Oil majors are also generally trading at least close to value territory, and Exxon Mobil Corporation (NYSE:XOM) happens to be valued at 11 times forward earnings estimates. Earnings were about flat in the first quarter of 2013 versus a year earlier, though the company’s revenue fell by over 10% over the same time frame. We’re interested in oil majors, but with many of Exxon Mobil’s peers also priced cheaply it would be worthwhile to see if their financial performance is any better.
Pfizer Inc. (NYSE:PFE) rounds out our list of D.E. Shaw’s cheap stock picks- the pharmaceutical company carries trailing and forward P/Es of 13 and 12, respectively, with the filing showing 6.8 million shares in the fund’s portfolio at the beginning of April. As with many pharmaceutical companies, Pfizer Inc. (NYSE:PFE) pays a high dividend yield of 3.5%, and with a beta considerably less than 1 might also be an attractive stock for income or defensive investors. We would note, however, that revenue was down in its most recent quarter compared to the same period in the previous year.
As a result, we think that we would avoid Pfizer at least for the time being. Apple Inc. (NASDAQ:AAPL) is certainly cheap in terms of valuation metrics, and would be poised for big gains if the company can halt its decline, but it might be best to wait for further results there as well. We’ve mentioned that Exxon Mobil might not be as interesting as the company’s peers, and while Wells Fargo and Marathon are certainly of interest we’re aware that those stocks’ industries are also generally cheap and so similar companies might be worth considering as well.
Disclosure: I own no shares of any stocks mentioned in this article.
