Reviewing 13F filings from hedge funds and other notable investors can lead to profitable investment strategies; we’ve shown, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (learn more about our small cap strategy). Because these filings disclose many of a fund’s long equity positions, they can also be mined for ideas in a variety of categories including stocks which meet traditional value criteria. We look at billionaire Ken Griffin’s Citadel Advisors’ most recent 13F for the end of December 2012 (see the full list of stocks Citadel reported owning) and here are five of its top picks which also post both trailing and forward price-to-earnings multiples of 15 or lower:
While a number of other hedge funds were selling Apple Inc. (NASDAQ:AAPL) in the fourth quarter of 2012- so many, in fact, that it lost its place as the most popular stock among hedge funds (AIG is the new #1)– Citadel doubled its equity holdings to over 1 million shares. Certainly the stock has been a poor performer, down over 20% in the last year while the market has risen. Investors are worried that even a growing tablet and smartphone market will not save Apple Inc. (NASDAQ:AAPL) from a decline in earnings as gross margins fall. Apple Inc. (NASDAQ:AAPL)’s trailing P/E is 10; as analysts are still bullish, its forward earnings multiple falls to 8.
Read on for three more cheap stocks Griffin likes, including one Warren Buffett likes as well:
ACE Limited (NYSE:ACE) was another of the fund’s stock picks with the filing reporting an 80% increase to almost 3 million shares. ACE is a property and casualty insurance company with a market capitalization of $30 billion. That value is right about at the book value of the company’s equity, and is also 11 times earnings (whether we use trailing or 2014 numbers). Revenue and earnings growth was positive last quarter compared to the fourth quarter of 2011, but less than 5% in each case. Billionaire Andreas Halvorsen’s Viking Global was another major shareholder in ACE (find Halvorsen’s favorite stocks).
Citadel increased its holdings of security software company Symantec Corporation (NASDAQ:SYMC) to a total of over 12 million shares. While Symantec reported a small increase in sales in the fourth quarter of 2012 versus a year earlier, net income was down 12%. The stock remains a candidate for value status at a trailing earnings multiple of 15, though it would obviously have to start increasing its earnings in the near future to be undervalued. Third Point, managed by billionaire Dan Loeb, was also buying Symantec and reported a position of 6.7 million shares at the end of the fourth quarter (research more stocks Loeb was buying).
The fund had 7 million shares of U.S. Bancorp (NYSE:USB) in its portfolio at the beginning of January. Growth on both top and bottom lines has been modest, but the stock trades at only 12 times trailing earnings and so very little improvement is required. Warren Buffett’s Berkshire Hathaway is a large shareholder of U.S. Bancorp, with the holding company’s own 13F filing showing that it owned over 61 million shares (see more stocks Buffett likes). We think that U.S. Bancorp’s combination of a cheap price and low growth rates makes it worth further investigation, though we would note that many large banks have low multiples as well.
Disclosure: I own no shares of any stocks mentioned in this article.
