In the investing world, hedge fund sentiment is an underrated indicator that really can help retail investors beat the market. While the entire industry itself is comprised of thousands of hedge funds, we at Insider Monkey choose to track the top 450 or so—the smart money’s crème de la crème. We recently teamed up with MarketWatch to create the Billionaire Hedge Fund Index, and our small-cap strategy gained an average of 31.6% between September 4th (shortly after we released this to the public) and February 15th, vs. 9.1% for the S&P 500 index (see how to use our market-beating strategy).
With that being said, it’s also important to do a fund-by-fund analysis, so we’re going to take a look at Kris Kristynik’s Longhorn Capital. We’ll take a run through its top five stock picks according to its latest fourth quarter 13F filing with the SEC.
Over the shorter term, Aon has stronger growth prospects, at least according to analyst averages, but Travelers trades at a more attractive PEG ratio of 1.27 versus Aon’s 2.11 mark. Travelers also offers a dividend yield (2.3%) that’s about twice the size of Aon’s, so we can possibly understand why Kristynik has a slightly larger position in the former. Still, both stocks have seen double-digit appreciation (in percentage terms) since the start of 2013, and it’s difficult to argue with Kristynik’s bullishness.
Campbell Soup Company (NYSE:CPB), meanwhile, is an obvious defensive play for this hedge fund manager, and what it lacks in growth it makes up for in value and income. Shares of Campbell currently trade at a 9.5% discount to their peer average on a price-to-earnings basis, and the packaged food company’s dividend yield of 2.9% places it 6th highest out of 35 stocks in its industry. Joining Kristynik in Campbell is a group of notable hedgies, including Ray Dalio, Mario Gabelli and Jim Simons (check out Simons’s favorite stock picks), so there’s clear support from the smart money.
Wal-Mart Stores, Inc. (NYSE:WMT) is Kristynik’s fourth largest holding, and along with other major retailers, the company saw a decent amount of hedge fund capital flight last quarter. Still, this was far better than some of its key peers like Target and Sears, and on the whole, it was the only retailer to have interest from 50 or more funds at the end of Q4. Wal-Mart has had a mild 2013, returning just 2.5%, though there’s plenty here for income and value-oriented investors to like.
What’s another reason to be bullish on the retailer?
Wal-Mart’s scale advantages are another key reason to be optimistic about the high-single-digit annual EPS growth predicted by the Street over the next few years, and a solid Q4 earnings beat is icing on the cake.
Rock-Tenn Company (NYSE:RKT), lastly, is Kristynik’s fifth largest holding, and rounds out this list. Rock Tenn has already returned nearly 25% year-to-date, and bulls have been active of late due to a favorable debt deal. Despite their recent appreciation, shares of the consumer packaging company are still cheap, trading at 10.5 times forward earnings and 0.7 times sales. Wall Street’s average price target on Rock Tenn indicates that just a 1-2% upside is expected from current levels, and the company’s dividend yield near 1% isn’t particularly earth shattering, but there’s something to be said for Kristynik’s conviction.
On the whole, 23 other hedge funds (among those we track) held Rock Tenn at the end of the fourth quarter, including Ken Heebner, John Paulson and David Dreman. With results like these, it’s important to pay attention to this sentiment.
Click here to learn more about Insider Monkey’s Hedge Fund Newsletter
Insider Monkey’s small-cap strategy returned 25.4% between September 2012 and January 2013 versus 7.4% for the S&P 500 index. Try it now by clicking the link above.
Disclosure: none
