In February, Coatue Management- a hedge fund managed by Philippe Laffont, a former employee of legendary investor Julian Robertson’s Tiger Management- filed its 13F for the fourth quarter of 2012, disclosing many of its equity positions as of the end of December. We have found that even with this delay it is possible to use 13Fs to develop investment strategies, given that the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year on average. We can also look at individual filings including Laffont’s, see what new positions a fund added to its portfolio, and treat those as a list of free recommendations for further research. Read on for our quick take on Coatue’s five largest new holdings from the 13F or see the full list of stocks it reported owning.
The fund initiated a position of 3.1 million shares in CBS Corporation (NYSE:CBS) between October and December of last year. CBS boasts a leading broadcast network as well as other television, publishing, and outdoor advertising assets. At a market capitalization of $29 billion, it trades at 19 times trailing earnings but the company is set to realize additional value from the outdoor business by converting the U.S. business to a real estate investment trust (which would receive favorable tax status under certain conditions, creating shareholder value) and selling its operations in other geographies.
Charter Communications, Inc. (NASDAQ:CHTR), a $10 billion market cap TV, Internet, and phone company, was another of Coatue’s new picks. Charter has been another good returner in the last year, up 58%, though it too is something of a short target with short positions accounting for over 10% of the total shares outstanding. Revenue was up 4% last quarter compared to the fourth quarter of 2011, and the stock is quite defensive at a beta of 0.3, but we are skeptical of its valuation as well.
See two more of the fund’s new stock picks:
Coatue bought 1.3 million shares of eBay Inc (NASDAQ:EBAY) in the fourth quarter. eBay’s payments division, which includes PayPal, has been leading the company’s overall growth though marketplaces have also been performing well. Overall, operating income was up 22% last year compared to 2011 (other sources of income were abnormally high in that year, causing net income to decrease as normal conditions resumed in 2012). Some growth is already priced into eBay, given the fact that it is valued at 17 times consensus earnings for 2014, but it might still be worth considering.
The 13F disclosed a new position of 7.5 million shares in Groupon Inc (NASDAQ:GRPN). The daily deals company is down 68% in the last year even after a rebound following the exit of its CEO. 13% of outstanding Groupon shares are held short, and the company continues to struggle with profitability; in addition, many bears argue that more merchants are turning down Groupon’s business opportunity. The sell-side expects 30 cents of EPS in 2014, implying a forward earnings multiple of 19, but we have too many concerns about the business to recommend buying the stock.
A number of Coatue’s new picks, including Groupon, Netflix, and Charter, seem too speculative for an investor to buy on the basis of anything but high growth expectations. As a result, we’d recommend avoiding the stocks and possibly taking a look at shorting Groupon now that the stock has climbed out of its slump (Netflix, we think, is too volatile for a short position). eBay also carries high earnings multiples but that company’s earnings growth seems to have better reasoning behind it, and CBS has a number of factors- including the REIT conversion- which make it worth a closer look in our view.
Disclosure: I own no shares of any stocks mentioned in this article.
