One way to reasonably measure a stock’s upside potential is through the PEG ratio, which corrects the P/E multiple for the analyst consensus earnings growth rate over the next several years. Street projections are often wrong of course, but the metric is still useful as an initial screen for investment ideas. We track many long equity positions from hedge funds and other notable investors in our database of 13F filings; we can not only use this information to develop investment strategies (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) but also to see which stocks a particular fund manager likes, including those with low PEG ratios. Read on for our quick take on five stocks that billionaire Glenn Dubin’s Highbridge Capital Management owned at the end of December with high upside potential (or see the full list of Dubin’s stock picks from the 13F):
Cosan Limited (NYSE:CZZ), a $5.5 billion market cap company which produces cane sugar and ethanol fuel, was the largest holding by market value in the fund’s portfolio. Highbridge owned almost 32 million shares according to the filing. The company’s revenue was up 38% last quarter compared to the fourth quarter of 2011, and net income more than doubled. Cosan will have to continue to do well since it trades at 25 times trailing earnings, but the forward P/E (for the fiscal year ending March 2014) is only 14 and analysts expect more growth following that point. We think that Cosan might be worth investigating as a growth stock.
Dubin and his team also liked Hertz Global Holdings, Inc. (NYSE:HTZ), with about 14 million shares in their portfolio at the end of the fourth quarter. Hertz rents construction and electrical equipment in addition to its better-known car rental business, making business very dependent on macro conditions. The stock’s beta is 2.7 as a result. Hertz is another stock which isn’t a good value if you look at the trailing P/E, but is expected to generate high earnings growth (it is valued at only 9 times forward earnings estimates). Billionaire James Dinan’s York Capital Management owned close to 12 million shares of Hertz (find Dinan’s favorite stocks).
Transocean, and two more stocks Highbridge owned: