Egerton Capital, a hedge fund managed by John Armitage, has filed its 13F for the end of December. These filings disclose many of a hedge fund or other notable investor’s long equity positions in U.S. stocks several weeks after the end of a fiscal quarter. Armitage co-founded Egerton with Tiger Cub William Bollinger in 1994; the fund has over $4 billion in assets under management. Read on for our quick take on Egerton’s five largest holdings and compare them to the fund’s previous filings.
The fund’s top pick was News Corp (NASDAQ:NWSA), which is in the process of breaking up into two separate media companies. Similarly to a spinout situation, the breakup of News Corp has the potential to create shareholder value if management of the new companies is better able to focus on issues impacting what had previously been only a part of a larger business. Read more about why hedge funds like to invest in spinouts. The stock trades at 14 times analyst expectations for earnings in the June 2014 fiscal year. Egerton owned almost 18 million shares of News Corp at the beginning of the year, up from about 15 million shares three months earlier.
Disney, another credit card company, and a big bank completed the top five list:
The Walt Disney Company (NYSE:DIS) dropped from the second slot to the third largest 13F position in Egerton’s portfolio as the fund owned 5.6 million shares of the media company after a modest sale. Disney’s fiscal year ended in September, with the company reporting a small rise in sales and 14% earnings growth. The stock carries trailing and forward P/E multiples of 17 and 14, respectively. We would like to see it a little cheaper but the combination of pricing and growth makes it worth a closer look in our opinion. Billionaire Ken Fisher’s Fisher Asset Management increased the size of its position in Disney during the third quarter of 2012 and owned 8.6 million shares at the end of September (check out Fisher’s stock picks).
Egerton made a big move by initiating a position of 4 million shares in American Express Company (NYSE:AXP), giving it a position worth over $200 million at the beginning of 2013. While American Express is cheaper than Visa- for example, the trailing P/E is 15- financial performance has been weak recently and its net income fell 47% last quarter versus a year earlier. Warren Buffett’s Berkshire Hathaway is a major shareholder in American Express (find Buffett’s favorite stocks). We would avoid American Express based on its bad quarter- as we mentioned in our discussion of Visa, some peers might be better buys.
Bank of America Corp (NYSE:BAC), another new position, rounded out the fund’s top picks with Armitage buying over 12 million shares of the megabank. Bank of America is up 61% in the last year, and it arguably might have further to rise given that it still trades at a discount to the book value of its equity- the P/B ratio is 0.6. Along with three other big banks, Bank of America was one of the most popular stocks among hedge funds in the third quarter (see our list of hedge funds’ favorite stocks). However, Bank of America has not done well at monetizing its assets and its earnings multiples are not particularly attractive compared to its peers, particularly considering its business has been struggling.
Disclosure: I own no shares of any stocks mentioned in this article.
