We track quarterly 13F filings from hundreds of hedge funds and other notable investors, including billionaire David Shaw’s large hedge fund D.E. Shaw. While one way to make use of this information is to compile 13Fs and use them to develop investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year), we also like to screen managers’ top picks according to a number of criteria, including stocks whose valuations represent low multiples of their earnings. Read on for our thoughts on D.E. Shaw’s five largest holdings as of the end of March in stocks with both trailing and forward P/Es of 13 or lower, or see the full list of D.E. Shaw’s stock picks.
While many hedge funds have been selling Apple Inc. (NASDAQ:AAPL) since the beginning of the year, D.E. Shaw increased its own holdings during Q1 to a total of 1.7 million shares. Apple Inc. (NASDAQ:AAPL) actually regained its place as the most popular stock among hedge funds during the quarter (find more of hedge funds’ favorite stocks). Lower gross margins have pulled the company’s earnings down, and markets are valuing Apple Inc. (NASDAQ:AAPL) as if they expect that trend to continue: even with the company’s large cash hoard and plans to begin a large repurchasing program the trailing P/E is 11.
The fund reported a position of 8.7 million shares in Wells Fargo & Co (NYSE:WFC) at the end of the first quarter of 2013. While many large banks have crushed the market’s performance over the last year, Wells Fargo & Co (NYSE:WFC) has outperformed the S&P 500 only slightly. With net income up 25% last quarter compared to the first quarter of 2012, the bank trades at 11 times trailing earnings and also offers a 3% dividend yield. Even with the stock valued at a considerable premium to the book value of the equity, there may be a value case here.
Shaw and his team disclosed ownership of 3.1 shares of Marathon Petroleum Corp (NYSE:MPC) a fairly recent spinout of Marathon Oil’s downstream operations. Oil and gas refining and marketing companies are seeing very low earnings multiples in the current market, and Marathon Petroleum Corp (NYSE:MPC) is no exception with both its trailing and forward P/Es clocking in at 8. With Wall Street analysts expecting business to grow over the next several years, the five-year PEG ratio is 0.7; we think Marathon and its peers are well worth considering as potential value plays.