By evaluating 13F filings from hedge funds and other notable investors (these filings disclose many long equity positions as of the end of the previous quarter, we can develop investment strategies despite the inherent delay. For example, the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (learn more about our small cap strategy). We can also use 13Fs to see the top picks in hedge fund portfolios, which investors may be interested in using as initial ideas, and to narrow a list of top picks further with other screening techniques. Here are five stocks which billionaire David Tepper’s Appaloosa Management (see more of his stock picks) reported a large position in which satisfy the traditional value criteria of low trailing and forward P/E multiples (defined in this case as 11 or lower):
Appaloosa’s top pick at the end of December was Apple Inc. (NASDAQ:AAPL), after having increased its holdings by 75% in Q4. American International Group Inc (NYSE:AIG) passed Apple Inc. (NASDAQ:AAPL) to become the most popular stock among hedge funds in the fourth quarter (find more of the most popular stocks among hedge funds) as investors increasingly worry about Apple’s margins. Wall Street analysts are bullish, with their forecasts implying that Apple Inc. (NASDAQ:AAPL)’s five-year PEG ratio is only 0.5. We think that the sell-side is being optimistic, but even if Apple keeps its earnings about flat it should be a good value.
Tepper and his team owned over 11 million shares of US Airways Group, Inc. (NYSE:LCC), as the fund has been generally positive on airlines despite their poor reputation as investments. US Airways is merging with bankrupt American Airlines, and this consolidation has the potential to increase industry-wide fares. US Airways has more than doubled in the last year, yet its current price is still only 5 times consensus earnings for 2014. Billionaire Stanley Druckenmiller initiated a position of 4 million shares between October and December (check out more stocks Druckenmiller was buying).
David Einhorn also likes this Tepper pick: