We track quarterly 13F filings from hundreds of hedge funds, including Glenn Greenberg’s Brave Warrior Capital, using the results to help us develop investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year). The information from individual managers’ filings, even though it is a bit out of date by now (the most recent 13Fs disclose many of a fund’s long equity positions as of the end of March) can still serve as a list of free investment ideas that investors can study further if they find any interesting names. Here is our quick take on Brave Warrior’s five largest holdings from its most recent 13F (or see the full list of stocks the fund reported owning).
Greenberg and his team reported a position of 6.6 million shares in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) in the filing. The company’s stock price has risen over 90% in the last year, giving it a valuation of $28 billion. Thanks in part to acquisitions, Valeant has been experiencing large percentage increases in revenue and operating income, but during Q1 2013 its net losses roughly doubled versus a year earlier due to higher operating costs and interest expenses. We would recommend avoiding it at least until we can be more confident in its earnings performance.
VistaPrint Limited (NASDAQ:VPRT) was another of Brave Warrior’s top picks with the filing disclosing ownership of 5.7 million shares. The $1.7 billion market cap printed marketing materials company (for example, it produces business cards, envelopes, and calendars) saw its revenue rise 12% in its most recent quarterly report compared to the same period in the previous fiscal year with profitability improving as well. However, market prices already account for a good deal of future growth with a trailing P/E of more than 50 and over 40% of the float is held short.
Greenberg had 5.4 million shares of Oracle Corporation (NASDAQ:ORCL) in its portfolio at the beginning of April. Oracle Corporation (NASDAQ:ORCL) has been recording earnings growth in recent reports, though this has come almost entirely through higher margins as the top line’s performance has been sluggish; further improvements in net margins may not be sustainable. However, the stock is arguably cheap with trailing and forward earnings multiples of 14 and 10, respectively, and so it does not need to improve its net income much. Billionaire Ken Fisher’s Fisher Asset Management had about 19 million shares of Oracle Corporation (NASDAQ:ORCL) in its own portfolio (find Fisher’s favorite stocks).
Brave Warrior rounded out its top five picks with 8.8 million shares of investment broker Charles Schwab Corp (NYSE:SCHW). Charles Schwab, following a more than 75% gain over the last year, looks fairly expensive in earnings terms- for example, it is valued at 26 times consensus earnings for 2014 (and analysts seem to be expecting considerable improvements in EPS to get to that point). Net income grew by 6% in the first quarter of 2013 versus a year earlier, and we are skeptical that is a high enough growth rate to justify the current valuation.
As we’ve mentioned, we aren’t fans of Valeant at its current price and would hold off on VistaPrint and Charles Schwab as well- the former has had the markets set a very high bar, while the combination of decent performance but high multiples at the latter is unattractive. Oracle Corporation (NASDAQ:ORCL), on the other hand, has low expectations in the market and so even with its business being flat might be worth investigating; Express Scripts also has a good deal of potential given its industry.
Disclosure: I own no shares of any stocks mentioned in this article.
