Several weeks after the end of each quarter, hedge funds such as billionaire Steve Cohen’s SAC Capital Advisors file 13Fs with the SEC to disclose many of their long equity positions as of the end of the previous quarter. We track these filings in our database and use them to develop investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy). Many investors also like to use 13Fs as a source of initial investment ideas for further research, by seeing what top managers such as Cohen did in the last quarter. Read on for our thoughts on some moves we noticed Cohen making in the first quarter of 2013 and compare his picks to those in previous filings.
Switching e-commerce companies. The fund reduced its stake in eBay Inc (NASDAQ:EBAY) from 4.6 million shares to 2.6 million, and instead more than tripled the size of its position in Amazon.com, Inc. (NASDAQ:AMZN) to make that company its second largest single-stock position by market value. Amazon.com, Inc. (NASDAQ:AMZN)’s valuation is entirely based on expectations for better earnings numbers in the future, as the $120 billion market cap company is actually unprofitable on a trailing basis (and is valued at over 80 times expected earnings for 2014). We’d note that Amazon.com, Inc. (NASDAQ:AMZN) was one of the most popular consumer services stocks among hedge funds in Q4 2012 (see more consumer services stocks hedge funds loved). While eBay Inc (NASDAQ:EBAY)’s multiples certainly aren’t as high in relative terms, that stock is also dependent on future growth with the current market cap of $74 billion making for a trailing earnings multiple of 28. eBay Inc (NASDAQ:EBAY) (which owns Paypal as part of its Payments segment) did experience double-digit growth rates in both revenue and earnings in its most recent quarter compared to the same period in the previous year, though this multiple might still be a bit high.
Suncor. EQT isn’t the only energy company Soros likes: he also added shares of Suncor Energy Inc. (USA) (NYSE:SU), which is best known for its assets in Alberta oil sands, to make two unconventional energy players among his top three picks. The company’s earnings fell 24% last quarter compared to the first quarter of 2012 despite a small rise in revenue. Analysts, however, are expecting Suncor’s business to grow considerably over the next couple years and as a result the forward P/E is 10. Of course, it might not be wise to place too much weight on sell-side forecasts.
The Alberta oil sands do have a good deal of potential as an energy source, and could certainly drive Suncor Energy Inc. (USA) (NYSE:SU)’s business, but it might be best to wait until the company is recording increases in its net income. We actually don’t like Amazon.com, Inc. (NASDAQ:AMZN) right now- certainly the business is doing well in expanding its scope but we’re worried that it is quite a way out from earnings numbers which would make us feel comfortable with its valuation- and as we’ve mentioned eBay Inc (NASDAQ:EBAY) is pricy enough that we are skeptical it is a value play at this time. EQT might also be a bit speculative, and we’re not sure it merits its premium to Chesapeake Energy Corporation (NYSE:CHK) among others, but merits notice as a way that some billionaires are playing a potential natural gas recovery.
Disclosure: I own no shares of any stocks mentioned in this article.
