Hedge funds and other major investors file 13Fs within several weeks after the end of each quarter, disclosing many of their long equity positions. Investors can use this public information to understand how a particular fund is approaching the markets, or to get what are essentially free recommendations from the fund manager. Of course, 13Fs are also useful when pooled to analyze what hedge funds in general are thinking. For example, we developed an investing strategy based on buying the most popular small cap stocks among hedge funds and the list of stocks we published in our August newsletter returned an excess return of 18 percentage points between September and January (read more about our hedge fund strategies).
Michael Messner, a former civil engineer, founded Seminole Capital in 1995. Seminole has already filed its 13F for the end of December, so we can treat its largest holdings as of that time as its stock picks for 2013. Read on for our quick take on these stocks and compare them to previous filings.
The fund’s top pick was Cisco Systems, Inc. (NASDAQ:CSCO), with the 13F reporting a position of 5.9 million shares. This was up from 4.9 million three months earlier. In Cisco’s most recent quarterly report (for the fiscal quarter ending in October 2012, the first of its fiscal year), the company reported a 6% increase in revenue and an 18% increase in earnings compared to the same period in the previous fiscal year. The stock currently trades at 13 times trailing earnings and we think it would be worth further research. Cisco made our list of the ten tech stocks hedge funds were crazy about in the third quarter of last year (see more tech stocks hedge funds loved).
Messner and his team had initiated a position of 1.3 million shares in Johnson & Johnson (NYSE:JNJ) during the third quarter, and increased it further in the last three months of the year. Billionaire George Soros was also buying shares of the healthcare company during Q3 (check out more stock picks from George Soros). Johnson & Johnson is a common candidate for a defensive stock, with a beta of 0.5 and a dividend yield slightly above 3%. Sales were up moderately last quarter versus a year earlier, though the trailing earnings multiple is in the high teens.
Find three more top stocks in Seminole’s portfolio:
Total S.A. (NYSE:TOT), a global oil major, was another of Seminole’s favorite stocks. As with many other oil majors, the stock is cheap from an earnings perspective with trailing and 2013 P/Es of 9 and 7 respectively. The dividend yield is high here as well, though business has not been particularly strong recently and of course as an oil and gas company it is exposed to commodity prices. We do think that it is cheap enough to consider alongside other majors including BP plc (NYSE:BP) and Exxon Mobil Corporation (NYSE:XOM). Arrowstreet Capital initiated a position in Total between July and September.
Seminole cut its stake in General Electric Company (NYSE:GE), but at 3.9 million shares the conglomerate was still one of its largest holdings going into 2013. Fisher Asset Management, managed by billionaire Ken Fisher, reported a position of over 30 million shares at the end of September (find Fisher’s favorite stocks). GE is another stock with a decent dividend yield, above 3%, and with a trailing P/E in the high teens. The company experienced growth on both top and bottom lines last quarter compared to the same period in 2011.
The fund was also selling shares of Vodafone Group Plc (NASDAQ:VOD) during the quarter, but as with GE the mobile phone service is still a core holding in Seminole’s portfolio. Billionaire David Einhorn, head of Greenlight Capital, recently said in a letter to investors that he believes that Verizon Communications Inc. (NYSE:VZ) could acquire the company. Yields are good here as well, though the stock has fallen slightly in the last year against a rising market on disappointing performance.
Disclosure: I own no shares of any stocks mentioned in this article.
