Billionaire Bruce Kovner Likes AIG and More High Upside Potential Stocks

Caxton hadn’t owned any shares of General Motors Company (NYSE:GM) at the beginning of July, but over the next three months it bought 1.2 million shares of the stock. GM had also made the list of hedge funds’ favorite stocks. It was one of billionaire David Einhorn’s long stock picks in his presentation at the Value Investing Congress, and his Greenlight Capital reported a position of almost 22 million shares (find Einhorn’s favorite stocks). The automaker carries trailing and forward P/Es of 10 and 7, respectively, and the PEG ratio is 0.8 as analysts foresee a recovery in the auto market. We think a number of auto stocks are priced low enough to be worth considering, but GM might not be as good a buy as some competitors or auto parts companies.

The fund nearly tripled the size of its position in Citigroup Inc. (NYSE:C), which trades at 9 times forward earnings estimates and a PEG ratio of 0.9. Between that and a P/B ratio of 0.6 it does look cheap, but revenue dropped 36% and net income was down 88% in its most recent quarter compared to the third quarter of 2011. Of the megabanks, we think that we might prefer JPMorgan Chase & Co. (NYSE:JPM); in terms of P/B ratio it trades at a premium to Citi at roughly 90% of book value, but its forward P/E of 8 actually represents a very slight discount to Citi. In addition, JPMorgan Chase reported significant earnings growth last quarter versus a year earlier; while revenue was up only slightly, it seems to be in a much better position than Citigroup. Both of these banks were among hedge funds’ favorite stocks; they were also two of the top four stocks in our rankings of the ten financial stocks hedge funds love.