We track 13F filings from hedge funds and other notable investors both to help us develop investment strategies- the most popular small cap stocks among hedge funds, which can be determined by pooling these filings, tend to outperform the S&P 500 by 18 percentage points per year- and simply as a source of stock picks for further analysis. Learn more about our small cap strategy. 13Fs are filed six to seven weeks after the end of a quarter and disclose many of an investor’s long equity positions as of the end of that quarter.
Billionaire Stanley Druckenmiller managed Duquesne Capital quite successfully for many years as well as served as a portfolio manager for George Soros. He now manages a family office under the Duquesne name; he is, therefore, still required to file 13Fs. We analyzed his filing for December 2012 and compared it to previous filings and here are some investment themes which we noticed:
Out of favor stocks. American International Group, Inc. (NYSE:AIG), while one of the most popular stocks among hedge funds in the third quarter of 2012 (see the full top ten list), is still looked on with disfavor by many market players and currently trades at a P/B ratio of 0.6. Airlines, including US Airways Group, Inc. (NYSE:LCC), are generally thought of as terrible investments. Druckenmiller hadn’t owned shares of either company at the beginning of October, but by the end of 2012 both stocks were among his ten largest holdings by market value. AIG is up 42% in the last year, even though its valuation remains low in book or earnings terms (the forward P/E is 11). US Airways and the in-bankruptcy American Airlines have agreed to a merger (as had been speculated for months) though the transaction still must be reviewed by the federal government. As it stands US Airways trades at 5 times forward earnings estimates though of course adding American’s operations may be challenging for the bottom line at least in the short term.
Druckenmiller was buying shares of a major technology company:
Google. The most recent 13F shows a near doubling of Druckenmiller’s stake in Google Inc (NASDAQ:GOOG) to about 140,000 shares. Last quarter Google Inc (NASDAQ:GOOG)’s earnings were up 7% versus a year earlier despite the acquisition of Motorola Mobility Holdings, which was not particularly positive for the bottom line in the short term. As Google Inc (NASDAQ:GOOG) continues to integrate the company, and as search growth continues to be strong, many investors have found it appealing. Wall Street analyst estimates imply a forward P/E of 15. Billionaire Stephen Mandel’s Lone Pine Capital owned over 1 million shares of Google at the end of September (check out Mandel’s stock picks).
Selling oil majors is certainly the right move if Druckenmiller thinks oil prices are on their way down, though we like their prices in the current market. We think AIG and airlines are good value plays, though we might prefer one of US Airways’ competitors; peers would benefit from industry consolidation without the risks of integrating American. In the case of Google we think investors are better served by waiting for more results from the company.
Disclosure: I own no shares of any stocks mentioned in this article.
