While the primary purpose of our database of hedge funds’ 13F filings is to help us develop investing strategies (for example, we have discovered that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year), we can also go through these filings to find a top manager’s favorite stocks in a number of areas. For example, since it has been a while since the most recent round of 13Fs (in most cases they disclose many of a fund’s long equity positions as of the end of March) we can look for stocks that a fund has owned over the long term. Investors can then do more research on any names which seem interesting. Read on for our quick take on billionaire Glenn Dubin’s Highbridge Capital Management’s five largest holdings from its most recent filing which it also owned at least $100 million of at the end of March 2011 (or see the full list of Dubin’s stock picks).
The fund reported a position of about 27 million shares on Cosan Limited(USA) (NYSE:CZZ), which had also been a top pick two years earlier. Cosan Limited(USA) (NYSE:CZZ) is a Brazilian company which primarily produces a number of products from sugarcane, including sugar and ethanol. At its current market capitalization of $4.3 billion, Cosan is valued at 24 times its trailing earnings. However, Wall Street analysts are bullish on the company’s prospects with their forecasts for future earnings growth implying a forward P/E of only 9 and a very low five-year PEG ratio.
Hertz Global Holdings, Inc. (NYSE:HTZ) has been another of Highbridge’s long term stock picks with the most recent filing disclosing ownership of almost 9 million shares. Like Cosan, its trailing earnings are fairly low compared to the valuation but recent growth has been impressive: revenue has been up over 20% from its levels a year ago. Analyst expectations for continued high growth result in a five-year PEG ratio of 0.5, even with the stock having risen over 130% in the last year. We’d note that Hertz Global Holdings, Inc. (NYSE:HTZ) carries a beta of 2.8.
According to the 13F, Dubin had 1.4 million shares of Eaton Corporation, PLC Ordinary Shares (NYSE:ETN), the $32 billion market cap power systems and services company, in his portfolio at the end of April. The firm recorded double-digit growth rates on both top and bottom lines in the first quarter of 2013 versus a year earlier. While some further improvements are already incorporated into the current stock price (the trailing earnings multiple is 21), it might be worth looking into Eaton Corporation, PLC Ordinary Shares (NYSE:ETN) to see if it can continue to sustain high growth rates over the next several years.
Highbridge has been a long term owner of SEI Investments Company (NASDAQ:SEIC) per our database. SEI Investments Company (NASDAQ:SEIC) is a wealth management and investment advisory company with a market capitalization of $5.4 billion. As with some of these other picks from the fund’s portfolio, its financials show good growth rates of both revenue and net income over the last year. Again, the earnings multiples are fairly high- the trailing and forward P/Es are 24 and 19 respectively- so investors would have to determine if growth will be high enough going forward to make it undervalued at the current price.
These picks are generally dependent on increasing their earnings over the next several years rather than being cheap in value terms. Still, Hertz has been doing well and in that case analysts at least are forecasting impressive growth going forward; Cosan’s industry can be thought of as having good prospects and so long-term growth there is certainly believable. Investors interested in SEI’s or Eaton’s industry could certainly look into how much of those companies’ recent performance could be expected to continue.
Disclosure: I own no shares of any stocks mentioned in this article.
