Julian Robertson, formerly of Tiger Management, is a legend in the hedge fund community for his fund’s excellent performance (which made him a billionaire) and for Robertson’s own success in producing “Tiger Cub” hedge fund managers who have gone on to be successful themselves. We have gone through Robertson’s recent 13F filing (see the full list of his stock picks) looking for stocks with a high upside potential. We did this by considering each stock’s PEG ratio, which divides the P/E multiple by the expected growth rate of earnings; while earnings predictions of course aren’t always accurate, we think that this type of analysis can be useful in picking out stocks for further research. Here are five stocks Robertson had over $5 million invested in at the end of the third quarter and which have low PEG ratios:
One of Robertson’s picks was Sirius XM Radio Inc (NASDAQ:SIRI); he increased his holdings by 16% last quarter, to a total of 5.9 million shares. Sirius’s revenue was up 14% in the third quarter compared to the same period in 2011, though net income was down sharply. We’d also note that there is considerable short interest in the stock, so investors should not put too much emphasis on the PEG metric; a number of market players think it’s overvalued at these prices. Fellow billionaire Leon Cooperman’s Omega Advisors was another buyer during the third quarter (find more stocks Cooperman was buying).
American International Group, Inc. (NYSE:AIG) was the third most popular stock among hedge fund during the third quarter of the year (see the top ten) after not having made the list at all three months earlier. Robertson reported owning about 520,000 shares of the insurer. AIG trades at 10 times forward earnings estimates, and analysts expect net income to grow over the next several years, making it look appealing to value investors. We also like that it is trading at half the book value of its equity; even though we probably would value the stock at a discount to book value, it would be a smaller one than that.