We track quarterly 13F filings from hundreds of hedge funds and other notable investors, including legendary investor Julian Robertson (formerly of Tiger Management). We’ve found that the information included in 13Fs can be useful in developing investment strategies (for example, the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year) and of course it can also be useful to go through the favorite stocks of top managers and use these as a source of initial investment ideas. Read on for our quick take on Robertson’s five largest holdings as of the end of March or see the full list of his stock picks.
The 13F shows that Robertson increased his stake in Google Inc (NASDAQ:GOOG) by 19% to a little over 34,000 shares during the first quarter of 2013. According to our database of 13F filings, Google Inc (NASDAQ:GOOG) was the second most popular stock among hedge funds during the quarter (check out our full top ten list). The stock currently trades at 16 times forward earnings estimates, taking into account analysts expectations of a strong improvement in EPS over the next year and a half; net income grew 16% in the first quarter of 2013 versus a year earlier.
Mastercard Inc (NYSE:MA) was another of Robertson’s top picks. Last quarter the credit card company experienced an 8% increase in revenue compared to the same period in the previous year, with earnings rising 12%. However, the market has already priced high growth into the current stock price: Mastercard’s trailing and forward earnings multiples are 25 and 19 respectively. That’s a pretty aggressive valuation, even with the company’s recent performance, and we think that we’d be more interested in looking at competitors such as Discover and Capital One.
Robertson disclosed ownership of about 580,000 shares of HCA Holdings Inc (NYSE:HCA), a large owner of hospitals. While recent financial performance at HCA has been weak, the industry in general carries fairly low multiples and this particular company is valued at 13 times its trailing earnings. Leverage is high, which likely provides a lot of explanation for why a hospital stock (we’d expect the hospital business to have little dependence on broader economic conditions) has a beta of 1.9. It might be worth comparing HCA to its peers to find healthier alternatives in the industry.
According to the filing, the billionaire kept his holdings of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) about constant between January and March at close to 290,000 shares. Valeant is a pharmaceutical company with a market capitalization of $27 billion. While revenue rose 25% last quarter compared to the first quarter of 2012 on strong product sales, Valeant was still unprofitable and in fact its pretax losses were much larger than they had been a year ago. Despite this, the stock price has risen 86% in the last year.
We still think that we would avoid Valeant, and as we’ve suggested we wouldn’t be comfortable buying Mastercard or H&R Block, Inc. (NYSE:HRB) at this time either. HCA might be worth a look, but we suspect that there are other stocks in the industry with similarly cheap multiples and stronger recent performance. As for Google Inc (NASDAQ:GOOG), we certainly see the company continuing to grow its earnings but the valuation is high enough that we aren’t sure that it still makes for a good growth pick.
Disclosure: I own no shares of any stocks mentioned in this article.
