The fund reported a position of 1.5 million shares in Apple Inc. (NASDAQ:AAPL), and at 10 times its trailing earnings the consumer technology company certainly qualifies for having a low multiple. Wall Street analysts continue to be optimistic about Apple but the stock has fallen dramatically in the last few months as the market expects lower gross margins to fuel a decline in the company’s earnings. While a number of hedge funds still owned Apple Inc. (NASDAQ:AAPL) at the end of December, enough had sold out of their position that it was no longer the most popular stock among hedge funds (AIG is the new #1).
D.E. Shaw owned 2.3 million shares of International Business Machines Corp. (NYSE:IBM) at the end of December. International Business Machines Corp. (NYSE:IBM) managed to squeeze out a 6% earnings growth rate last quarter compared to the fourth quarter of 2011 despite a very small decline in revenue, though we doubt that the company will be able to continue growing the bottom line through higher margins alone. The sell-side has a different take, judging by the fact that the stock trades at 15 times trailing earnings but only 11 times forward earnings estimates. As a result we would avoid the stock unless it started to show more sustainable performance.
Wells Fargo & Co (NYSE:WFC) was another of the fund’s top picks with the 13F disclosing ownership of 9.8 million shares. In terms of the book value of its equity, it’s tough to call Wells Fargo & Co (NYSE:WFC) a value stock: the P/B ratio is 1.3. However, because the bank generates income from these assets more efficiently than its peers, on an earnings basis it is quite competitive with other large banks with (for example) a forward P/E of 9. The business has been doing well, the dividend yield is a little under 3%, and overall we think that it may be one of the better buys in financials. We would at least compare it to JPMorgan Chase however.
The fund increased its holdings of $67 billion market cap Occidental Petroleum Corporation (NYSE:OXY) by 86% to a total of 3.9 million shares. A drop in net income in the fourth quarter of 2012 versus a year earlier has contributed to Occidental carrying a trailing P/E of 15- decent on an absolute basis, but actually a bit expensive compared to some other large energy companies and certainly a level we’d normally associate with growing earnings. Revenue was up a bit over the same period but overall we are skeptical that Occidental is in fact a good value.
D.E. Shaw was also buying shares of Marathon Petroleum Corp (NYSE:MPC) between October and December, and closed 2012 with 3.6 million shares in its portfolio. Marathon Petroleum is a $29 billion market cap refining and marketing company (not to be confused with Marathon Oil, which is an exploration and production company following the 2011 spinout of Marathon Petroleum). The stock trades at 9 times earnings, whether we use trailing results or consensus for 2014. However, analysts do expect net income to tick up over the next several years resulting in a five-year PEG ratio of 0.7.
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