We have been working on analyzing the latest round of 13F filings from hedge funds and other notable investors. These documents disclose many of a filer’s long equity positions in U.S. stocks as of the end of the most recent quarter (December in this case). We have found that even with the lag in reporting the public can still use this information in a few different ways. For one, the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year on average and other investment strategies are possible as well (read more about imitating hedge funds’ stock picks). Another way to use 13F filings is to use top picks by fund managers as free recommendations. Just as with any other source of ideas it’s important to evaluate these investments on their own merits. Here are Noam Gottesman and GLG Partners’ five largest single-stock equity holdings according to the 13F:
GLG increased its stake in VMware, Inc. (NYSE:VMW) to a total of about 840,000 shares. VMware’s software products and solutions are focused on cloud computing. Its stock price has fallen 28% in the last year and 14% of the outstanding shares remain short, as earnings growth has been low recently even while sales have been quite strong. At a trailing earnings multiple of 42 VMware will have to start generating earnings growth very soon in order to justify its valuation. Billionaire Steve Cohen’s SAC Capital Advisors was buying shares of VMware in Q4 (see Cohen’s stock picks).
Another growth stock that Gottesman and his team were buying last quarter was Facebook Inc (NASDAQ:FB) – they had 2.2 million shares at the end of December per the 13F. Facebook Inc (NASDAQ:FB) was one of the most popular tech stocks among hedge funds in the fourth quarter of 2012 (find more tech stocks hedge funds love) despite the fact that its forward earnings multiple- based on estimates for 2014- is 35. While Facebook Inc (NASDAQ:FB) has been experiencing high revenue growth it has been accompanied by high costs and it is unclear to us that it can become as profitable as investors believe.
Learn about more of GLG’s top stock picks:
The fund added shares of Apple Inc. (NASDAQ:AAPL) and owned a little less than 100,000 shares at the end of 2012. General pessimism about Apple contributed to it no longer being the most popular stock among hedge funds last quarter (check out hedge funds’ top five stocks). It is now down 14% in the last year. Apple is not a growth stock: it is valued at only 10 times its trailing earnings, meaning that as long as it can preserve its current business it will prove a good value. The next couple years should see a race between lower margins and growing tablet and smartphone sales.
Qualcomm, Inc. (NASDAQ:QCOM) was another of GLG’s top picks, with a position of over 770,000 shares. The communications equipment company is coming off a high-growth quarter, with the first quarter of its fiscal year (the quarter which ended in December 2012) seeing large increases in both sales and net income. The trailing and forward P/Es are 17 and 14, respectively. Billionaire Ken Fisher’s Fisher Asset Management reported owning 9.1 million shares of Qualcomm in its own 13F filing (research more stocks Fisher owns).
Gottesman nearly doubled the size of the fund’s position in Citgroup Inc. (NYSE:C) and closed December with 1.2 million shares in its portfolio. At a P/B ratio of 0.7, Citi is still priced at a significant discount to the book value of its equity even after moving up in price over the last year. Revenues were up slightly last quarter versus a year earlier, and margins expanded as well. Appaloosa Management, managed by billionaire David Tepper, cut its stake slightly but Citigroup was still one of its largest holdings (see Tepper’s favorite stocks). Analyst estimates for Citigroup imply a forward P/E of 8.
Disclosure: I own no shares of any stocks mentioned in this article.
