Earnings multiples are very basic value metrics, but we think they are still useful in the sense that stocks with low P/Es can be a good place to start looking for undervalued stocks. We can refine the “screen” implied by low earnings multiples further by looking through filings from top investors and seeing which stocks they own have low multiples. Oaktree Capital Management, which is managed by billionaire Howard Marks, has a number of debt investments but also reports many of its long equity positions to the SEC in 13F filings. Here are four stocks which Oaktree had over $10 million invested in according to its most recent 13F (see more stock picks from Howard Marks) and which had trailing and 2013 P/E multiples of 12 or lower:
Auto parts company Delphi Automotive PLC (NASDAQ:DLPH) was one of the top picks in Oaktree’s portfolio as the fund owned over 14 million shares. Fellow billionaire John Paulson cut his fund’s stake in Delphi but Paulson & Co. still owned over 25 million shares at the end of September (check out Paulson’s favorite stocks). Delphi focuses on providing components related to the electrical, electronic, and powertrain systems. The stock carries trailing and 2013 earnings multiples of 10 and 9, respectively; analysts are optimistic about Delphi’s future and so the five-year PEG ratio, which takes the expected earnings growth rate into account, is a quite low 0.6. The company’s business has been about flat despite a poor auto market and we think that investors might want to consider it further as a value opportunity.
GM and a grocery store rounded out the list:
Marks and his team reported a position of 1.4 million shares in General Motors Company (NYSE:GM), which made our list of the most popular stocks among hedge funds for the third quarter of the year (see the full top ten list). Billionaire David Einhorn’s Greenlight Capital has been one of the most active promoters of the stock in the last several months (research more stocks Einhorn likes). GM is at least a candidate for value status at 11 times trailing earnings, and the sell-side is predicting considerable earnings growth here as well, but we’re more cautious: net income was down 13% in Q3 2012 compared to the same period in the previous year and the discount isn’t that large compared to more reliable- and faster growing- peers such as Honda Motor Co Ltd (NYSE:HMC) and Toyota Motor Corporation (NYSE:TM).
Oaktree owned 1 million shares of Safeway Inc. (NYSE:SWY), which trades at 8 times earnings whether we consider trailing results or expectations for 2013. That’s a cheap multiple indeed, and the five-year PEG ratio is 0.9 as the sell-side sees some earnings growth coming over the next several years. Safeway also pays a high dividend yield- 4% at current prices and dividend levels. However, the stock is down substantially in the last year and nearly 30% of outstanding shares are held short. Ray Dalio’s Bridgewater Associates, which is one of the largest and most successful hedge funds in the world, increased its stake by 41% between July and September to a total of 2.6 million shares (find Bridgewater’s favorite stocks).
Disclosure: I own no shares of any stocks mentioned in this article.
