Billionaire Ken Griffin’s Cheap Stock Picks Include Apple Inc. (AAPL)

We have been going through the most recent round of quarterly 13F filings from hedge funds such as billionaire Ken Griffin’s Citadel Investment Group, which discloses many of these funds’ long equity holdings as of the end of March. Even though this information is a bit old, there are still a couple ways in which we believe investors can use it. For one, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year and think that other strategies are possible as well. We can also screen individual managers’ top picks according to a number of criteria, including low P/E multiples, as a source of initial investment ideas. Read on for our quick take on Citadel’s five largest holdings in stocks with both trailing and forward earnings multiples of 14 or lower or see the full list of the fund’s stock picks.

Griffin increased his holdings of The Allstate Corporation (NYSE:ALL) by 52% between January and March to a total of 6.5 million shares. While the insurance company is actually priced at a small premium to the book value of its equity- the P/B ratio is 1.1- is has managed to generate plenty of income from these assets and as a result its low earnings multiples (for example, the trailing P/E is 10) place the stock in value territory. We would note that in the first quarter of 2013 The Allstate Corporation (NYSE:ALL)’s net income did fall moderately versus a year earlier.

Midwestern regional bank U.S. Bancorp (NYSE:USB) was another of Citadel’s cheap stock picks as the filing disclosed ownership of 8.6 million shares. Wall Street analysts are looking for low earnings growth at U.S. Bancorp, as shown by the fact that its trailing and forward P/Es are 12 and 11 respectively, and in fact recent financial results are showing exactly that. We’d like to see somewhat higher growth rates, even at that pricing, as many other regional banks are valued cheaply potentially making U.S. Bancorp (NYSE:USB) a less attractive stock than its peers.

The fund cut its stake in Apple Inc. (NASDAQ:AAPL) by 38% but still owned about 640,000 shares at the beginning of April, and as a result Apple Inc. (NASDAQ:AAPL) remained among its ten largest holdings by market value. Even with many funds selling out of Apple Inc. (NASDAQ:AAPL) last quarter, the technology company regained its place as the most popular stock among hedge funds (find more of hedge funds’ favorite stocks). Both the trailing and forward earnings multiples are in the 10-11 range, despite Apple’s large cash hoard, as markets generally expect further declines in the company’s earnings.

Griffin and his team reported a position of 2.7 million shares in United Technologies Corporation (NYSE:UTX) at the end of Q1. The industrial technology company, whose products include Otis elevators, Pratt & Whitney aircraft engines, and Sikorsky helicopters, trades at 14 times earnings regardless of whether we compare the $87 billion market cap to trailing earnings or consensus forecasts for 2014. Business is up, thanks in part to a recent acquisition, and we’d be interested in taking a closer look at the company- even low growth could make it a good value at this price.

Citadel more than tripled the size of its position in PNC Financial Services (NYSE:PNC) and owned 3.7 million shares according to the filing. PNC is another well liked bank among investors, with its P/B ratio also being slightly above 1. The trailing P/E is 13, even though recent results have been quite good; specifically, net income came in 26% higher last quarter than in the first quarter of 2012. We think that combination of earnings growth and fairly low pricing makes PNC Financial Services (NYSE:PNC) a good candidate for value status.

Griffin has a number of at least somewhat interesting picks here. While The Allstate Corporation (NYSE:ALL) and U.S. Bancorp (NYSE:USB) have not been doing so great recently, they are at least cheap enough to be worth a look or watching for further results, and we’ve mentioned that PNC Financial Services (NYSE:PNC) seems attractive. United Technologies Corporation (NYSE:UTX) would take some work to tease out the effects of acquisitions, but certainly the market seems to have low expectations for the company. As for Apple Inc. (NASDAQ:AAPL), the earnings multiples are certainly low but we do have some concerns on the earnings front. It might best be placed on a watchlist.

Disclosure: I own no shares of any stocks mentioned in this article.