Six to seven weeks after the end of each fiscal quarter, hedge funds report many of their long equity positions to the SEC and the general public as of the end of that quarter in 13F filings. Even though the information is delayed, we’ve actually found that the most popular small cap stock picks among hedge funds- as determined from these filings- outperform the S&P 500 by an average of 18 percentage points per year. We also like to look at what fund managers own and then take a brief look at their top stock picks, similarly to the way stock screens are used, and often combine the information found in 13Fs with other screens including price-to-earnings multiples. Read on for our quick take on five stock picks from billionaire Kerr Neilson’s Platinum Asset Management which have both trailing and forward P/Es of 16 or lower, or see the full list of stocks Platinum reported owning.
Microsoft Corporation (NASDAQ:MSFT) slipped out of the top five most popular stocks among hedge funds during the fourth quarter of 2012 (see the new top five), but Neilson and his team actually increased their stake to over 13 million shares. Down 11% in the last year against a rising market, Microsoft Corporation (NASDAQ:MSFT) trades at 15 times trailing earnings thanks in part to a large writedown in 2012. The forward P/E is 9, but that in turn may be skewed due to a temporary boost in earnings as new versions of Microsoft Corporation (NASDAQ:MSFT)’s core products Windows and Office are released.
Platinum also bought shares of Cisco Systems, Inc. (NASDAQ:CSCO) between October and December, and closed 2012 with close to 13 million shares of that stock in its portfolio. The networking and communications technology company has been experiencing slight revenue growth, with the stock trading at only 12 times trailing earnings. The dividend is also close to 3%. Billionaire Ken Fisher’s Fisher Asset Management reported a position of 33 million shares in Cisco on its own 13F (check out Fisher’s stock picks). We think that the combination of value and modest growth is worth considering.
Find more stocks Platinum owns, including two oil and gas equipment and services companies:
The fund had 9.3 million shares of Foster Wheeler AG (NASDAQ:FWLT), a $2.2 billion market cap construction company with a focus on energy and power generation facilities, at the end of the fourth quarter. Foster Wheeler trades at 16 times trailing earnings, and Wall Street analysts expect high growth: that price represents only 10 times forward earnings estimates and a five-year PEG ratio of 0.7. SAC Capital Advisors, managed by billionaire Steve Cohen, was buying shares of Foster Wheeler and owned 3.8 million shares (find Cohen’s favorite stocks).
Neilson increased his stake in Baker Hughes Incorporated (NYSE:BHI) by 70% to a total of 2.2 million shares. Baker Hughes- perhaps best known for its drill bits- is an oil and gas equipment and services company with a market capitalization of $19 billion. This places its valuation at trailing and forward P/Es of 15 and 10, respectively. Last quarter, however, earnings were down over 30% from their levels in the fourth quarter of 2011. Baker Hughes was one of the top stock picks in value investor Edgar Wachenheim’s Greenhaven Associates’ portfolio (research more stocks Greenhaven owns).
Another oilfield equipment and services stock Platinum liked was Halliburton Company (NYSE:HAL), with the filing disclosing a position of 1.5 million shares. Halliburton wasn’t as popular among hedge funds as its larger peer Schlumberger Limited. (NYSE:SLB), but it did still mark our list of the most popular energy stocks among hedge funds. At 14 times trailing earnings, Halliburton is considerably cheaper than Schlumberger but the company did report a 26% decline in net income in the fourth quarter of 2012 versus a year earlier despite rising revenue. The sell-side expects the company to recover and we would look closely at both services companies.
Disclosure: I own no shares of any stocks mentioned in this article.
