We primarily track 13F filings from hedge funds and other notable investors as part of our work researching investments strategies (for example, we have found that the most popular stocks among hedge funds earn an average excess return of 18 percentage points per year). However, we also like to see what successful fund managers’ favorite stocks are and treat this information similarly to a stock screen. We can also combined ownership by a top manager with other screens including a low PEG ratio (which incorporates both the price-to-earnings multiple and analyst consensus earnings growth rates). Assuming the analysts are correct in their forecasts, the PEG is one way to measure a stock’s upside potential. Here are five stocks with low PEG ratios that billionaire James Dinan’s York Capital Management owned at the end of December (or see the full list of Dinan’s stock picks):
The fund’s top single-stock position was American International Group Inc (NYSE:AIG), reporting a position of 8.8 million shares. Between a number of hedge funds buying AIG last quarter and those selling Apple Inc. (NASDAQ:AAPL), AIG became the most popular stock among hedge funds (find more of hedge funds’ favorite stocks). The insurer trades at a significant discount to the book value of its equity with a P/B ratio of 0.6. It also looks potentially cheap in earnings terms, with the current price representing a forward P/E of 9.
York cut its stake in Hertz Global Holdings, Inc. (NYSE:HTZ) but still owned over 11 million shares of the car and industrial equipment rental company. Between the two sides of its business Hertz is quite dependent on macro activity, and as a result the stock has a beta of 2.7. 17% of the outstanding shares are held short as many market players are bearish on the company. Revenue increased 15% last quarter compared to the fourth quarter of 2011, and rosy Street expectations place Hertz at 9 times forward earnings estimates as well.
See three more stocks Dinan likes with low PEG ratios, including Apple: