Billionaire David Einhorn’s Small Cap Picks Include Legg Mason, Inc. (LM)

Babcock & Wilcox (NYSE:BWC) was another of Greenlight’s small cap picks with the filing disclosing ownership of 4.1 million shares. The company provides components to power plants and also supplies nuclear reactors to the U.S. Navy for use in ship construction. Wall Street analysts apparently believe that Babcock & Wilcox is immune from any potential declines in military spending, as their forecasts for earnings per share over the next several years imply a forward P/E of 12 and a five-year PEG ratio of 0.7. We wouldn’t place too much trust in these forecasts, however.

According to the 13F, Einhorn cut his stake in asset manager Legg Mason, Inc. (NYSE:LM) by 25% but still owned 2.5 million shares at the end of the first quarter of this year. Legg Mason is priced at a discount to book value, but a small one, and in its most recent quarter net income was down considerably compared to the same period in the previous fiscal year. The stock is cheap enough that it’s probably not a good short- even though shorts are responsible for 10% of the float- but Legg Mason also doesn’t look like a good buy right now. Billionaire Nelson Peltz’s Trian Partners owned nearly 13 million shares of the stock (find Peltz’s favorite stocks).

Greenlight disclosed ownership of 1.2 million shares of $3.2 billion market cap infrastructure technical and management services company AECOM (NYSE:ACM) in the filing. Last quarter AECOM’s earnings were up 10% compared to a year ago, though revenue was down slightly. Still, even after a nearly 90% rise in the stock price over the last year AECOM is currently valued at 11 times consensus earnings for the fiscal year ending in September 2014. As such it too is a potential value stock though we would be concerned about the lower sales.

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