Even though the information in 13F filings is several weeks old by the time it is released, there are a number of ways for investors to at least get some contributions from analyzing the portfolios of hedge funds and other notable investors. First of all, even with the lag the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (read more about our small cap strategy). Second, even if one isn’t going to blindly follow them, why not get a list of stock picks from top names and then decide whether or not each name is a good value? Billionaire Stanley Druckenmiller has retired from managing Duquesne Capital, but he still files 13Fs. See what he owned at the end of December or read on for our thoughts on his five largest new positions from the fourth quarter of 2012:
His largest new pick was 4 million shares of US Airways Group, Inc. (NYSE:LCC), which has risen 76% in the last year as the company mergers with American Airlines and therefore gains more market power in an industry where consolidation may push up prices. 14% of the outstanding shares are held short- certainly in the past airlines have proven to be risky investments- and peers such as Delta Air Lines, Inc. (NYSE:DAL) would benefit from consolidation without the integration risk. With very low earnings multiples, we think that the industry is a good source of value prospects. Billionaire David Tepper’s Appaloosa Management is an investor in a number of airlines including US Airways (find Tepper’s favorite stocks).
Two high yield stocks were added to Druckenmiller’s portfolio:
Johnson & Johnson (NYSE:JNJ) was another of Druckenmiller’s new picks with the filing reporting a position of about 720,000 shares. At a beta of 0.5 and a dividend yield of over 3%, the personal products company is often used as an income or defensive stock. Johnson & Johnson’s sales were up 8% in the fourth quarter of 2012 versus a year earlier. The stock does trade at 20 times trailing earnings, and so would be of questionable value at these prices. Fisher Asset Management, managed by billionaire Ken Fisher, owned over 10 million shares of Johnson & Johnson (check out Fisher’s stock picks).
Another high-yield stock Druckenmiller added to his portfolio was $39 billion market cap electric utility The Southern Company (NYSE:SO). The dividend yield at Southern is over 4%, and as might be expected for a utility it has nearly no exposure to the broader economy with a beta of 0.1. Of course, the flip side to being a utility is that growth is low and with earnings multiples in the teens investors who are coming more from a value background might not be as interested as income investors. That market could be well served to look at Southern along with other large-cap utilities.
Druckenmiller bought 2.8 million shares of Cemex SAB de CV (NYSE:CX), an $11 billion market cap cement company. Because cement demand is tied to construction Cemex’s stock is sensitive to market indices with a beta of 2.6, meaning that these new stock picks tend to cluster towards those with strong or weak relationships to the economy rather than those in the middle. Cemex is expected to be narrowly unprofitable this year and analyst consensus for 2014 does not make the current valuation look attractive either with a forward P/E of 43.
Disclosure: I own no shares of any stocks mentioned in this article.
