When we went through the most recent 13F filing for Cliff Asness’s AQR Capital Management (we track 13Fs from hundreds of hedge funds and other notable investors as part of our work developing 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), we noticed a number of stocks meeting the traditional value criteria of low earnings multiples. We don’t recommend blindly buying these “cheap” stocks, but think that they can be a useful starting point for finding value opportunities worthy of further research. Read on for our quick take on AQR’s five largest holdings as of the end of March (this information is a bit out of date, but many of these positions did not change much during Q1 and so might be meant as longer-term picks) with both trailing and forward P/Es of 12 or lower or see the full list of stocks the fund reported owning.
AQR reported a position of 3.2 million shares in Exxon Mobil Corporation (NYSE:XOM), about even with what it had owned at the beginning of 2013. Exxon Mobil trades at 11 times forward earnings estimates, which places it at a small premium to many oil and gas majors on that basis. Similarly, the 2.8% dividend yield is decent but lower than can be found at many of its peers. While its net income was about flat in the first quarter of 2013 versus a year earlier, revenue fell by 13%. The Bill and Melinda Gates Foundation Trust was the largest Exxon Mobil Corporation (NYSE:XOM) shareholder out of the filers we track (check out more stocks the trust owns).
JPMorgan Chase & Co. (NYSE:JPM) was another of Asness’s cheap picks with the filing disclosing ownership of 4.4 million shares of the megabank. JPMorgan Chase is valued at 9 times earnings, whether we look at trailing or forward results, while other large banks are generally either highly dependent on improving their business in 2014 or carry a high price-to-book ratio (JPMorgan Chase’s is at right about 1). As a result we like the bank somewhat more than its peers. Billionaire David Shaw’s hedge fund D.E. Shaw owned 4.1 million shares as of the beginning of April (research Shaw’s stock picks).
The fund bought 2.9 million shares of large chemicals company LyondellBasell Industries NV (NYSE:LYB) between January and March. Earnings have been up at Lyondellbasell, despite somewhat lower sales numbers, and Wall Street analysts expect the trend on the bottom line to continue. With markets generally pricing chemicals companies cheaply, the trailing and forward earnings multiples are 12 and 9 respectively. We’d note that the stock features a beta of 2.5- it is highly dependent on the broader economy. Viking Global reported a position of over 13 million shares in its own 13F; that fund is managed by billionaire Andreas Halvorsen.
According to the filing AQR was selling some of its shares of Apple Inc. (NASDAQ:AAPL) but still closed Q1 with about 370,000 shares. With a number of other funds liking Apple Inc. (NASDAQ:AAPL), it regained its place at the top of our list of the most popular stocks among hedge funds. Falling margins drove Apple Inc. (NASDAQ:AAPL)’s net income down 18% in its most recent quarterly report compared to the same period in the previous fiscal year despite higher revenue. The stock is down 33% in the last year, which places the trailing P/E at 10, and that is with cash and cash equivalents making up a significant share of the market cap.
Disclosure: I own no shares of any stocks mentioned in this article.
