While we don’t recommend blindly following hedge fund activity from 13F filings, we do consider these filings potentially useful for many investors. The most popular small cap stocks among hedge funds, as determined by our analysis, generate an average excess return of 18 percentage points per year (learn more about imitating hedge funds’ small cap picks). We also like to apply traditional stock screens, including the traditional value criteria of low earnings multiples, to lists of individual managers’ top picks so that investors can do further research on any stocks which seem both cheap (by quantitative metrics) and interesting. Read on for our quick take on billionaire Israel Englander’s Millennium Management’s five largest holdings in stocks with both trailing and forward P/Es of 13 or lower, or see the full list of the fund’s stock picks.
Millennium more than doubled the size of its position in chemicals company LyondellBasell Industries NV (NYSE:LYB) to a total of 1.7 million shares. With demand for chemicals being correlated to broader economic activity, LyondellBasell Industries NV (NYSE:LYB)’s beta is 2.5. While the trailing P/E is low in absolute terms at 12, we’d note that the company experienced a 9% decline in revenue last quarter compared to the first quarter of 2012. While analysts expect earnings per share to rise over the next year and a half, we might prefer to look at other chemical companies instead.
Englander and his team were also buying Marathon Petroleum Corp (NYSE:MPC), an oil and gas refining and marketing company. Marathon Petroleum Corp (NYSE:MPC) has more than doubled in price over the last year, which has been a hot time for downstream oil and gas companies. Revenue and earnings have been up strongly, and Wall Street analysts expect that trend to continue; with the company’s earnings multiples being low (as is the case for many of its peers as well) the result is a five-year PEG ratio of 0.7. Even if we discount these high expectations we think Marathon is worth considering.
National-Oilwell Varco, Inc. (NYSE:NOV) was another of Millennium’s cheap picks with the filing disclosing ownership of 1.2 million shares. The oil and gas equipment and services company is another high-beta stock (specifically, the beta is 2.4) in addition to posting trailing and forward earnings multiples in the 11-12 range. While National-Oilwell Varco, Inc. (NYSE:NOV)’s revenue increased by 23% in its most recent quarter compared to the same period in the previous year, margins shrunk enough to drive a 17% fall on the bottom line and so we’d be a bit worried about its future prospects.