We like to analyze 13F filings from hedge funds as part of our research into investment strategies; for example, we have found that the most popular small cap stocks among hedge funds produce an average excess return of 18 percentage points per year (learn more about our small cap strategy). We can also look at individual filings and see what a well-known hedge fund manager’s favorite stocks were in a number of categories, including “cheap stocks” as in those with low earnings multiples. These can sometimes provide good ideas for investors to research further. We went through billionaire Steve Cohen’s SAC Capital Advisors’ most recent 13F (see the full list of Cohen’s stock picks) and here are his five largest holdings in stocks with both trailing and forward P/E multiples less than 16:
The fund increased its holdings of Superior Energy Services, Inc. (NYSE:SPN) by 25% to a total of 7.7 million shares, making the $4.1 billion market cap drilling equipment and services company (which has a focus on offshore drilling) one of its ten largest stock holdings. Fellow billionaire Ken Griffin’s Citadel Investment Group was also buying Superior (find Griffin’s favorite stocks). Wall Street analysts are much more bullish on Superior than the market: the stock’s trailing P/E is only 11, but consensus implies a forward P/E of 9 and a five-year PEG ratio of 0.6. We’d be interested in learning more about the company and seeing if investors are actually missing anything.
Read on for three more stocks Cohen likes, including an oil major:
Avago Technologies Ltd (NASDAQ:AVGO), an $8.4 billion market cap designer of semiconductor products, was another of Cohen’s stock picks with fairly low earnings multiples; the stock trades at trailing and forward P/Es of 15 and 12, respectively. Avago’s stock has sold off just a bit in the last year against a rising market, and revenue growth last quarter was fairly low versus a year earlier (though of course little growth is required at this pricing). Lee Ainslie’s Maverick Capital, even after cutting its stake, was the largest shareholder in our database of 13F filings.
Cohen and his team were buying oil major Occidental Petroleum Corporation (NYSE:OXY), closing December with 1.8 million shares in their portfolio. Occidental made our list of the most popular energy stocks among hedge funds for the fourth quarter of 2012 (check out more energy stocks hedge funds love). The stock trades at 15 times trailing earnings, which is actually higher than many of its peers, though net income is expected to improve to the point where the forward P/E is 11. That is certainly low in absolute terms though we would certainly explore Exxon Mobil Corporation (NYSE:XOM) and other oil majors as alternatives.
SAC had owned a small position in Discover Financial Services (NYSE:DFS) at the beginning of October but built it up to 3.4 million shares by the end of 2012. Discover is valued at 9 times trailing earnings, whether we look at trailing results or consensus for the fiscal year ending in November 2014. The financials actually look good as well with decent growth rates in net income entirely due to increasing revenue. Cliff Ansess’s AQR Capital Management roughly doubled the size of its own position in Discover (see more stocks AQR was buying).
Disclosure: I own no shares of any stocks mentioned in this article.
