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Billionaire Ken Fisher’s Small Cap Picks Include Domino’s Pizza, Inc. (DPZ)

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Our analysis of quarterly 13F filings has shown that on average the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). We think that this is because small cap stocks tend to receive less attention from most institutional investors and the financial media, and so are more likely to be either undervalued or overvalued. We can also use our database of 13Fs to review small cap picks from individual managers; while blindly following these picks may not be wise, they can at least be treated similarly to the results of a stock screen with investors performing further research on any interesting names. Read on for our quick take on the five largest small cap stocks in billionaire Ken Fisher’s Fisher Asset Management’s portfolio as of the end of March or see the full list of Fisher’s stock picks.

The asset management firm owned a little over 2 million shares of sporting goods retailer Cabelas Inc (NYSE:CAB). Cabela’s has become known primarily as a way to play demand for guns; gun sales have been up dramatically in recent years, powering the stock price to more than 400% returns over the last five years. Earnings grew by 73% last quarter compared to the first quarter of 2012, with revenue rising close to 30%; management attributed a large portion of this strength to continued high gun demand. The trailing P/E is 25 as markets anticipate even more growth.

Ken Fisher - FISHER ASSET MANAGEMENTAnother strong performer in recent times- its stock price has roughly doubled in the last year- is Domino’s Pizza, Inc. (NYSE:DPZ). This has come coupled with significant improvements in terms of the bottom line, with recent reports showing much higher net income numbers. However, with markets generally assigning high multiples to quick service restaurants, we think Domino’s Pizza, Inc. (NYSE:DPZ) looks a little expensive- its forward P/E is 22. Renaissance Technologies, whose founder Jim Simons is now a billionaire, owned 2.5 million shares according to its own 13F (find Renaissance’s favorite stocks).

The Ryland Group, Inc. (NYSE:RYL), a $2 billion market cap homebuilder and mortgage finance company, was another of Fisher’s top small cap picks with the filing disclosing ownership of 2.6 million shares. Homebuilding has been a hot industry, and Ryland is up close to 100% in the last year as well. The stock carries trailing and forward P/Es of 33 and 12, respectively, showing that both the market and Wall Street analysts are generally quite optimistic. However, a number of market players are bearish and 16% of the float is held short.
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