Odey Asset Management, managed by Crispin Odey, is a London-based hedge fund with $6.2 billion in assets under management. Originally founded in 1991, Odey’s fund has had its fair share of ups and downs over the years, with an unequivocal high point coming in 2008, when bearish bets on European banks allowed the manager to generate a 54.8% return in that year. One of Odey’s original backers was George Soros, as the Yorkshire-born money manager has no fear of making bold prophetic statements in a style very similar to “The Man Who Broke the Bank of England.” Odey’s most recent prediction is that Europe is headed toward a Japan-esque stagnation. Only time will tell if he’s proven to be correct once again.
Wells Fargo & Company (NYSE:WFC)
Taking the top spot in Odey’s portfolio, Wells Fargo accounts for a whopping 17.1% of his total holdings, worth over $244 million. In 2012 thus far, the banking giant has been a good investment for the hedge fund manager, returning 27.0%. The company beat the Street’s estimates in its Q2 earnings release, reporting an EPS of $0.82 a share. Riding a wave of improvements in its credit and mortgage banking businesses, analysts are expecting Wells Fargo to reach earnings of $0.87 by the end of the third quarter. If this target were to be hit, it would mark a 20.8% growth from Q3 of 2011.
From a valuation standpoint, shares of Wells Fargo trade at a Price-to-Earnings ratio (11.6X) below the banking industry average (12.8X), and its own 5-year historical average (18.8X). When earnings growth is factored into the equation – which has averaged 59.1% a year post-recession – we can see that the stock sports a modest PEG ratio of 1.2, on the borderline of being undervalued.
If Wells Fargo is able to reach its year-end earnings estimates of $3.32 a share, fairly valued shares can reach $43 in the next 6-12 months; they currently trade in the $34 range.
Citigroup Inc (NYSE:C)
Amounting to a value of more than $114 million, Citigroup is Crispin Odey’s second favorite stock, accounting for nearly 8% of the manager’s total portfolio holdings. Between the first and second quarters of this year, Odey increased his position in the company by a shave over 2%, and the move has been the right one so far. In the past three months, shares of Citigroup have returned 21.1%, outpacing the financial services sector (11.4%) quite handily.
Like Wells Fargo, Citigroup reported better than expected second quarter earnings, surprising the average estimates by 6.7%. By the end of 2012, the Street is predicting that the bank will report an annual EPS of $3.92 a share, up 7.2% from the $3.66 it reported in 2011. Due to the fact that Citigroup currently trades at a rather deep earnings discount (26.0%) in relation to industry norms, this stock has a nice upside if year-end targets can be met. Assuming that it can reach earnings of $3.92 a share by year’s end, fairly valued shares of Citigroup can reach a price of $47 in the next 6-12 months; they currently trade in the $32 range.
JPMorgan Chase (NYSE:JPM)
Just like Wells Fargo and Citigroup, JPMorgan Chase has been a solid investment since the start of 2012, returning 18.2%. Odey’s fund holds over 3 million shares of the company’s stock, good for a value of more than $108 million. Between the first and second quarters of 2012, the hedge fund manager bolstered his position in the bank by 27%, in a time when the “London Whale” drama was still dominating the headlines.
That bet appears to have paid off, at least in the short-run, as JPMorgan most recent earnings release beat the Street’s estimates quite handily. Specifically, the bank reported a Q2 EPS of $1.21 a share, 52 cents higher than analysts’ forecasts. Year-end earnings estimates average $4.67 a share, which would mark a 4.3% increase from 2011 levels.
Like its aforementioned competitors, JPMorgan currently trades at a P/E ratio (9.1X) below the industry average (12.2X), and its own 5-year historical average (16.9X), so there is a good amount of upside if year-end EPS estimates are met. Specifically, fairly valued shares can flirt with $57 in the intermediate-term. They currently trade around $39 a share.
DR Horton Inc (NYSE:DHI)
Aside from the banking giants, Crispin Odey has also begun to favor residential construction companies, most notably DR Horton. The stock accounts for 7.1% of the hedge fund manager’s total portfolio value, greater than its closest competitor Pulte Group (NYSE:PHM) at 4.4%.
Understandably, DR Horton is trading at a deeper discount than Pulte Group, particularly when earnings growth is factored into the equation. Using 5-year EPS estimates, Pulte sports an astronomical PEG ratio of 5.6, while DR Horton trades at a much more reasonable PEG of 1.5.
In its most recent earnings release, DR Horton reported an adjusted EPS of $0.22 a share, up from the $0.09 it reached in Q2 of 2011. By the end of 2012, analysts are predicting that the homebuilder will reach a bottom line of $0.80 a share, which would be a 563.3% spike from last year’s totals. If even the low range ($0.70) of this estimate can be met, DR Horton can reach a share price of $35, nearly double that of current levels.
As you’ve probably noticed by now, each of Crispin Odey’s top stock picks is attractively valued, and expecting solid earnings expansion going forward. These are two screening tactics that can be used by any investor. For a look at the hedge fund manager’s holdings in their entirety, check out Odey’s profile page.
