One of the most common objections to incorporating 13F filings into an investment process is that the information in these filings is a bit out of date; the most recent round of filings discloses many of a hedge fund’s or other major investor’s long equity positions as of the end of March. However, we’ve actually fund that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year. In addition, even though 13Fs are old we can compare them to those from years ago to see which stocks investors have liked over a long time frame and so are more likely to still own. Here are five stocks which billionaire Michael Price’s MFP Investors owned at least $10 million of both in its most recent filing and in the one from the first quarter of 2011 (or see the full list of the fund’s stock picks over time):
One of MFP’s long term favorite stocks has been Citigroup Inc (NYSE:C), with about 800,000 shares in its portfolio per the most recent filing. Citigroup Inc (NYSE:C), which had been one of the ten most popular stocks among hedge funds during Q1 (check out the full top ten list), remains priced at a discount to the book value of its equity (the P/B ratio is 0.8) even after rising 90% over the last year. Earnings have not been particularly high recently, but they have been rising and Wall Street analyst forecasts for next year imply a forward P/E of 9.
The fund kept its stake in GulfMark Offshore, Inc. (NYSE:GLF), a $1.3 billion market cap offshore oilfield drilling and equipment services company, about constant at about 620,000 shares in the first three months of 2013. GulfMark Offshore, Inc. (NYSE:GLF) had been underperfoming expectations in 2012, but its reported results for Q1 were above consensus and with the sell-side expecting business to improve next year the forward P/E is 12. The company is dependent on improving its bottom line considerably to hit that target, however, and investors might prefer to consider other offshore exposed companies.
Becton, Dickinson and Co. (NYSE:BDX) has been another of Price’s long term stock picks; the most recent filing disclosed ownership of about 240,000 shares of the medical device company. There was little change in either sales or net income in its most recent quarterly report compared to the same period in the previous fiscal year; with the stock trading at 16 times forward earnings estimates, that doesn’t seem like attractive financial performance considering Becton, Dickinson and Co. (NYSE:BDX)’s valuation. As a result investors should probably avoid the stock for now.
MFP Investors reported a position of 2.2 million shares in Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) as of the beginning of April, and the fund has been a long term owner of this stock as well. Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) owns and franchises table service restaurants including under the Ruth’s Chris Steak House brand. At a market capitalization of about $460 million (there is close to $4 million in daily dollar volume), the stock is valued at 26 times trailing earnings. That’s expensive for a table service restaurant in the current environment, but recent reports do show decent growth numbers.
Still, we would hold off on Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) until we see high enough earnings to price the stock in line with its peers. The same thesis seems appropriate for GulfMark Offshore, Inc. (NYSE:GLF) and McGraw Hill Financial Inc (NYSE:MHFI)- wait until the company delivers more of these improved earnings that the market is currently pricing in. Citigroup Inc (NYSE:C) is worth a look, as the stock is somewhat cheap in book terms, though many other large banks are also trading at P/B ratios of 1 or lower and so investors should also evaluate industry peers.
Disclosure: I own no shares of any stocks mentioned in this article.
