Several weeks after the end of each quarter, hedge funds and other notable investors are required to file 13Fs with the SEC; the most recent filing discloses many of each’s long stock positions as of the end of March. By compiling this information over time in our database, we have found that it is possible to develop investment strategies based on 13Fs: the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year, and we think more techniques are possible as well. We can also see what individual managers have been doing and see if they have any interesting ideas. Here is what we found when we looked at the most recent 13F for billionaire and Tiger Cub Stephen Mandel‘s Lone Pine Capital compared to previous filings:
News Corp. The fund increased the size of its position in News Corp (NASDAQ:NWSA) to a total of about 22 million shares. News Corp (NASDAQ:NWSA) has been a very popular stock among the hedge funds which we track in our database- at the beginning of this year, it was actually the most popular consumer services stock (see more consumer services stocks hedge funds loved). It actually isn’t that expensive in terms of its earnings multiples, with analyst consensus for the fiscal year ending in June 2014 implying a forward P/E of 17. That’s with the media and entertainment company reporting very good results, and with the potential for the breakup of News Corp (NASDAQ:NWSA) to increase shareholder value as management of the new companies becomes better able and incentivized to improve operations. As such we’d suggest News Corp (NASDAQ:NWSA) as a potential target for further research.
Selling Cognizant. Lone Pine still owned 8.7 million shares of Cognizant Technology Solutions Corp (NASDAQ:CTSH), a $19 billion market cap IT consulting company and outsourcing services provider, but this was down considerably from what it had owned three months earlier. Cognizant Technology Solutions Corp (NASDAQ:CTSH) had actually recorded high growth on both top and bottom lines last quarter compared to the first quarter of 2012; earnings for example, were up 17%. William Gray’s Orbis Investment Management has been another major shareholder in Cognizant Technology Solutions Corp (NASDAQ:CTSH) (find Orbis’s favorite stocks).
Still likes retail. Once again three of Mandel’s eight largest holdings are retailers- this quarter we have two dollar stores (Dollar General Corp. (NYSE:DG) and Dollar Tree, Inc. (NASDAQ:DLTR)) and The Gap Inc. (NYSE:GPS). The dollar stores stand out for having very limited exposure to the broader economy, with each carrying a beta of 0.1. Dollar General Corp. (NYSE:DG) and Dollar Tree, Inc. (NASDAQ:DLTR) also grew their earnings in their most recent quarter compared to the same period in the previous fiscal year, though Dollar Tree, Inc. (NASDAQ:DLTR) did considerably better with 22% earnings growth (driven mostly by higher sales). Their trailing P/Es are in the 18-19 range, so these valuations are dependent on future improvements. The Gap Inc. (NYSE:GPS), which is up 51% in the last year, trades at about the same level relative to trailing earnings. It experienced double-digit growth rates in revenue and net income over the same time frame that the dollar stores did well.
All five of the stocks we’ve covered here are doing well in business terms. Neither News Corp (NASDAQ:NWSA) nor the retailers is a classic value stock, given their P/E multiples, but there’s at least some potential for each of these stocks which Mandel and his team like. News Corp (NASDAQ:NWSA), of course, has the additional catalyst of the breakup; between that factor and the secular trends in its financials it’s certainly of interest to us. The dollar stores could be of particular interest to investors trying to make their portfolios more defensive, and Dollar Tree has certainly been doing well enough going by its 10-K that it might be worth its premium to the larger discount retailers. The Gap Inc. (NYSE:GPS) might also be worth looking into to see how the company can sustain its current performance.
Disclosure: I own no shares of any stocks mentioned in this article.
