Several weeks after the end of each quarter, hedge funds and other notable investors including billionaire George Soros file 13Fs with the SEC, disclosing many of their long equity positions as of the end of the previous quarter (with the most recent filing referring to portfolios as of the end of March). Even though this information is a bit old, there are still a few ways for investors to make us of it. We’ve found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year, and think that more strategies are possible as well. We can also screen top managers’ picks according to a number of criteria, including low earnings multiples, in search of any interesting investment ideas which might be worthy of further research. We have gone through Soros’s filing and here are his five largest holdings in stocks with both trailing and forward P/Es of 14 or lower (or see the full filing on our website).
The billionaire’s top pick in this category was US Airways Group, Inc. (NYSE:LCC), with 7.8 million shares in his portfolio at the beginning of April. US Airways Group, Inc. (NYSE:LCC) is buying American Airlines out of bankruptcy, and many analysts believe that this consolidation could stimulate higher prices in the airline industry. The stock trades at only 6 times forward earnings estimates, however, as investors worry about the general unattractiveness of airlines as well as integration risk. We’d note that many other airlines also carry low multiples and as such might be more attractive value plays.
Macy’s, Inc. (NYSE:M) was another of Soros’s cheap picks: the filing disclosed ownership of 1.1 million shares, while the department store carries trailing and forward P/Es of 14 and 11 respectively. With Wall Street analysts expecting further improvements on the bottom line over the next several years, the five-year PEG ratio is 0.9. As with Mosaic, while Macy’s, Inc. (NYSE:M) has been delivering good earnings growth this has primarily come from wider margins; still, the stock is cheap enough and recent performance has been strong enough that we’d be interested in learning more about the company.
According to the 13F, Soros had 1.5 million shares of General Motors Company (NYSE:GM) in his portfolio at the end of the first quarter of 2013. General Motors Company (NYSE:GM) didn’t do that great last quarter, as its earnings dropped by 11% compared to Q1 2012 as growth in the U.S. was offset by poor numbers in other markets. The automaker is an analyst darling, with bullish expectations from the sell-side implying a forward P/E of only 8 and a five-year PEG ratio well below 1. In addition, General Motors Company (NYSE:GM) was one of the five most popular stocks among hedge funds last quarter (check out the full top ten list).
Rounding out our list of Soros’s cheap stock picks is $1 billion market cap semiconductor designer Spreadtrum Communications, Inc (ADR) (NASDAQ:SPRD). The company’s products are used as wireless communications products, including in smartphones. At 12 times trailing earnings, the market appears to have low expectations for Spreadtrum. Analysts are looking for very high growth, however, and as a result the stock’s five-year PEG ratio is quite low. While revenue growth rates are in the double digits, Spreadtrum Communications, Inc (ADR) (NASDAQ:SPRD) does not seem to have been successful in holding costs down going by recent reports.
Still, we think that the company is worth a look even if we don’t fully trust analyst forecasts here. Macy’s also seems to be holding up well in the face of Internet and big-box competition, and its valuation makes it look interesting as well. We’ve mentioned that Mosaic and US Airways derive their low multiples in part from their industry, meaning that we’re not sure they’re any more appealing than their peers, and we’d lump General Motors Company (NYSE:GM) into that category as well.
Disclosure: I own no shares of any stocks mentioned in this article.
