Assured Guaranty Ltd. (AGO), LinnCo LLC (LNCO): Billionaire Louis Bacon’s Small Cap Picks

We maintain a database of 13F filings from hedge funds and other notable investors and use this information to develop investing strategies; one of our findings has been that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy). We attribute this to large institutional investors such as mutual funds paying less attention to small caps, making them less efficiently priced. Our database also allows us to pick out individual fund managers’ top picks in a number of areas, including small caps, for investors to use as ideas for further research. Here are five stocks with market capitalizations between $1 billion and $5 billion which billionaire Louis Bacon’s Moore Global owned at the end of December (or see the full list of stocks the fund reported owning):

Bacon more than doubled the size of his position in Assured Guaranty Ltd. (NYSE:AGO), a $3.8 billion market cap insurer of public finance and infrastructure securities, to a total of over 5 million shares. The stock trades at a small discount to the book value of its equity with a P/B ratio of 0.8. The stock fell somewhat between 2010 and the beginning of 2012, likely on concerns over municipal default, but has since recovered. Invesco Private Capital reported owning close to 20 million shares of Assured Guaranty Ltd. (NYSE:AGO) as of the end of December (check out Invesco’s stock picks).

Moore Global initiated a position of 1.5 million shares in LinnCo LLC (NASDAQ:LNCO) between October and December of 2012. An acquirer of oil and gas acreage, LinnCo LLC (NASDAQ:LNCO) has been paying a quarterly dividend of 71 cents per share since becoming publicly traded in October 2012 (the stock’s return has roughly matched that of the S&P 500 since that time) which gives it a dividend yield of 6.9%. That is high, though income investors might of course prefer stocks with a longer track record of paying dividends. Steadfast Capital Management was another major shareholder in LinnCo LLC (NASDAQ:LNCO) (research more stocks Steadfast likes).