In May, Generation Investment Management, a hedge fund co-managed by David Blood and former Vice President Al Gore, filed its 13F for the first quarter of 2013 with the SEC. These filings disclose many of a fund’s long equity positions in U.S. stocks as of the end of the quarter, and we’ve found that they can be used to help develop investment strategies; for example, the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year. We also like to go through individual filings in search of ideas which investors might find worthy of further research. Read on for our thoughts on Generation’s five largest holdings as of the end of March or see the full list of stocks the fund reported owning.
Blood, Gore, and their investment team maintained a position of 4.2 million shares in Henry Schein, Inc. (NASDAQ:HSIC), an $8.6 billion market cap medical equipment company with a focus on dental health equipment. In the first quarter of 2013, its revenue rose 9% versus a year earlier with net income growing at a slightly higher rate as margins improved. However, markets have already priced in quite a bit a future growth and as a result the trailing earnings multiple of 22. Billionaire Ken Fisher’s Fisher Asset Management reported owning about 590,000 shares in its own 13F (find Fisher’s favorite stocks).
The fund was buying shares of medical device company Becton, Becton, Dickinson and Co. (NYSE:BDX) in the first quarter of 2013 for a total of 3.8 million shares. The stock trades at 16 times forward earnings estimates, so here too Generation is depending on the company producing significant earnings growth going forward. However, business was about flat in its most recent quarterly report compared to the same period in the previous fiscal year with net income down slightly. Citadel Investment Group owned 1.6 million shares; that fund is managed by billionaire Ken Griffin (research more stocks Citadel owns).
$8.8 billion market cap laboratory instruments company Waters Corporation (NYSE:WAT) was another of Generation’s top picks with the filing disclosing ownership of 3.4 million shares. The stock is valued at 18 times its earnings, whether we compare that valuation to trailing results or to what the sell-side is expecting Waters to earn next year. Earnings have been up strongly, but it looks to be a short-lived increase as sales numbers have only barely risen (and as with Danaher, net income growth derived entirely from margins is likely unsustainable). Cantillon Capital Management reported a position of 1.1 million shares according to our database.
According to the 13F, Blood and his team increased their stake in QUALCOMM, Inc. (NASDAQ:QCOM) by 53% between January and March. As with many of the companies we’ve discussed here, QUALCOMM, Inc. (NASDAQ:QCOM) features a trailing earnings multiple in the high teens; however, both revenue and income from continuing operations were up about 20% in its last quarterly report from their levels a year ago. Analysts expect high growth to continue, with the result being a five-year PEG ratio of 0.7. Billionaire Stephen Mandel’s Lone Pine Capital disclosed ownership of 8.3 million shares (see more stock picks from Lone Pine Capital).
Disclosure: I own no shares of any stocks mentioned in this article.
