One of Steyer’s top ten picks was State Street Corporation (NYSE:STT), with a position of 2.9 million shares in the asset manager and custody bank. Earnings were up last quarter versus a year earlier, though revenue showed a slight decline. The market capitalization of $22 billion makes for a trailing P/E of 12, which would be about right if State Street’s bottom line remained constant going forward. Trian Partners, managed by billionaire activist investor Nelson Peltz, reported owning 9.1 million shares in its own 13F (check out Nelson Peltz’s stock picks).
Rockwell Collins, Inc. (NYSE:COL) was another of Farallon’s picks as the hedge fund increased its holdings by 23% to a total of 1.9 million shares. Rockwell Collins provides communications and other electronic systems to government and commercial customers; despite concerns over cuts to military spending, Wall Street analysts seem to be anticipating earnings growth next year. The stock carries trailing and forward P/E multiples of 14 and 12, respectively. Rockwell Collins was one of Valueact Capital’s top stock picks. We think that we would avoid it.
Farallon reported owning about 140,000 shares of Apple Inc. (NASDAQ:AAPL), though this was down 38% from its position at the beginning of July. Apple was the most popular stock among hedge funds during the third quarter (see the full rankings). It reported revenue and earnings growth of over 20% last quarter compared to the third quarter of 2011, and while we don’t expect that level of growth to continue the stock does only trade at 12 times trailing earnings. Even if Apple doesn’t grow much at all over the next several years, we like it at that price.
The fund also owned General Dynamics Corporation (NYSE:GD), with about 920,000 shares in its portfolio. Warren Buffett liked the aerospace and defense company as well: Berkshire Hathaway kept its own holdings constant through the quarter at 3.9 million shares (find Warren Buffett’s favorite stocks). Earnings were down in the company’s most recent quarter compared to the same period in the previous year, and General Dynamics also faces concerns about spending cuts. Even at a trailing P/E of 10, then, and a dividend yield of 3%, we would hesitate to recommend it as business seems likely to be worse in the near future.
Farallon cut its stake in WellPoint, Inc. (NYSE:WLP) but still owned 640,000 shares at the end of September. WellPoint trades at 8 times earnings, whether we consider trailing results or analyst consensus for 2013. Our impression is that health insurers are generally trading low because of uncertainty over the implementation of new healthcare policies, and whether the government will follow up on those policies with any new regulations on the insurance industry. However, we think the multiples are low enough to make it worth it to consider the company more closely. Billionaire Dan Loeb’s Third Point was buying the stock last quarter.
