$2.5 Billion Hedge Fund Senator Investment Group’s Picks Include Tempur-Pedic International Inc. (TPX)

The market is pricing in moderate growth going forward, with the current price placing the stock at a trailing P/E of 18. It could be interesting, but we’d think that margin-driven earnings growth is less sustainable than that based on higher sales.

Senator owned 5 million shares of oil and gas pipeline and gathering systems company Williams Companies, Inc. (NYSE:WMB) at the beginning of April. It’s another potential income stock, with a dividend yield of 3.7%. However, business has not been good- revenue was down 10% in its most recent quarter compared to the same period in the previous year, and earnings came in 62% lower- so it would be important to investigate how safe those dividend payments are. The earnings multiples are also quite high here.

As a result we’d avoid Williams- there are probably better options out there in the pipeline universe for investors chasing yield. Macquarie is similarly problematic; even with a yield near 5% we’d want to pay at least some attention to where the stock is valued and it doesn’t seem that attractive there. In fact, the rest of Silverman and Klabin’s picks also seem a bit too dependent on future growth for our liking. Danaher comes somewhat close, as that company could be fairly valued if it continued to improve its bottom line at the current pace, but over time we’d expect its earnings growth rate to converge towards its lower revenue growth.

Disclosure: I own no shares of any stocks mentioned in this article.