Millennium Management, a hedge fund managed by billionaire Israel Englander, filed its 13F for the first quarter of 2013 with the SEC in May. This most recent round of filings disclosed many of hedge funds’ long equity positions in U.S. stocks as of the end of March. Even with the information being somewhat old, we’ve found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year, and we think that more strategies are possible as well. We also like to go through individual filings and see which stocks were added to the portfolio over the previous quarter. Here are our thoughts on five of Millennium’s largest new positions from the 13F (or see the full list of Englander’s stock picks):
The fund bought 1.8 million shares of Virgin Media Inc. (NASDAQ:VMED) during the first quarter of the year. Liberty Global has announced plans to merge with Virgin Media Inc. (NASDAQ:VMED), creating a merger arbitrage opportunity. Many hedge funds like to invest in merger arbitrage situations since the return on these investments depends entirely on the transaction closing, reducing market exposure; hedge funds can generally apply a good deal of leverage to their position resulting in high returns (particularly on an annualized basis).
Millennium initiated a position of a little over 1 million shares in health insurance company Aetna Inc. (NYSE:AET). In the first quarter of 2013, Aetna Inc. (NYSE:AET)’s revenue grew by 7% but thanks to compression in its net margins the company’s earnings actually fell slightly. Wall Street analysts expect that trend to reverse, and are actually looking for decent increases in EPS going forward. With the stock trading at 13 times trailing earnings as is, the Street’s bullishness pulls the forward P/E down to 9. Billionaire David Einhorn’s Greenlight Capital had 6.5 million shares of Aetna Inc. (NYSE:AET) in its portfolio according to that fund;s own 13F (find Einhorn’s favorite stocks).
Expeditors International of Washington (NASDAQ:EXPD) was another of Englander’s new stock picks with the filing disclosing ownership of 1.4 million shares of the $7.8 billion market cap logistics company. The market is pricing in high growth at Expeditors International of Washington (NASDAQ:EXPD); specifically, the trailing earnings multiple is 24. However, recent financial results have not been in line with this expectation: last quarter sales were about flat compared to the first quarter of 2012 while growth on the bottom line was only 5%. Even with the sell-side calling for improvements in earnings over the next year and a half, we would avoid the stock.