Many market watchers claim that hedge funds’ quarterly 13F filings are a waste of time, but we disagree; in fact, we think that there are a number of ways for investors to use them. For one, our research shows that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year, and our own portfolio based on this finding beat the S&P 500 by 33 percentage points in the last 11 months (learn more about our small cap strategy).
Another potential use is to treat 13Fs similarly to a stock screen: review a list of a manager’s top picks and do further research on any interesting names, such as JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc. (NYSE:C) in the following hedge fund manager’s equity portfolio. Here is our quick take on the five largest single-stock holdings in billionaire Louis Bacon’s Moore Global’s portfolio as of the end of June (or compare these picks to the fund’s previous filings):
Bacon and his team increased their stake in Hartford Financial Services Group Inc (NYSE:HIG) to a total of 7.8 million shares. The $14 billion market cap property and casualty insurance company has been selling off some of its assets, resulting in a number of special items; its adjusted earnings per share from last quarter were slightly below consensus expectations. In quantitative terms it could be considered cheap, with a P/B ratio of 0.7 and a forward earnings multiple of 8, but we might want to wait for more numbers pertaining to its current business. Billionaire John Paulson has also been long Hartford Financial Services Group Inc (NYSE:HIG) (find Paulson’s favorite stocks).
Moore Global reported a position of 3.6 million shares in JPMorgan Chase & Co. (NYSE:JPM) as of the beginning of July. The bank continues to be troubled by legal problems and the possibility that it will have to make large payouts to the government and other parties, but business has been doing well with earnings rising about 30% in Q2 2013 versus a year earlier. JPMorgan Chase & Co. (NYSE:JPM) trades at 9 times earnings whether we consider trailing results or expectations for 2014. Fisher Asset Management, run by billionaire Ken Fisher, had owned about 13 million shares at the end of the first quarter of the year (check out more stocks Fisher liked).
Another megabank which the fund had in its portfolio was Citigroup Inc. (NYSE:C). Citigroup Inc. (NYSE:C), per our analysis, was the fifth most popular stock overall among hedge funds last quarter (see the full top ten list). While the trailing earnings multiple is nothing special, Wall Street analysts are highly bullish on the stock and as a result the forward P/E is 9. In addition, Citigroup Inc. (NYSE:C) trades at a discount to the book value of its equity as the P/B is 0.8. While analyst projections shouldn’t be taken at face value, we think it is worth comparing Citigroup Inc. (NYSE:C) to its peers.
Assured Guaranty Ltd. (NYSE:AGO) was another of Moore’s top picks with the filing disclosing ownership of 6.4 million shares. The company provides credit protection for public finance and infrastructure securities, and features a beta of 1.9 as its prospects are dependent on the overall economy. While recent reports show a drop in sales and net income, the sell-side believes that this is a temporary setback. Assured Guaranty Ltd. (NYSE:AGO) is expected to earn $2.76 per share in 2014, resulting in a forward earnings multiple of 8, though future growth is anticipated to be limited.
Rounding out our list of Bacon’s favorite stocks from last quarter is Hertz Global Holdings, Inc. (NYSE:HTZ), which rents cars and industrial equipment. Hertz recently acquired Dollar Thrifty, which has contributed to growth in the company’s business; consolidation would be expected to benefit the rental car industry, though Hertz Global Holdings, Inc. (NYSE:HTZ) also has to contend with integration risks. We’d note that Hertz Global Holdings, Inc. (NYSE:HTZ) is another high beta stock, and along with the financial picks the fund would seem to be bullish on the market. Billionaire James Dinan’s York Capital Management owned almost 11 million shares at the end of Q1 (research more stocks York owned).
Disclosure: I own no shares of any stocks mentioned in this article.
