We track quarterly 13F filings from hundreds of hedge funds and other notable investors as part of our work researching investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). We also like to take a brief look at what a number of top managers including billionaire Ken Griffin of Citadel Investment Group have been doing on a quarter-to-quarter basis by comparing their most recent 13F to the previous one (see Citadel’s filings over time). Read on for three things that we noticed the fund doing in the first quarter of 2013 or see the full 13F on the SEC’s website (warning: it’s long!).
Disney. Griffin and his team increased the size of their position in The Walt Disney Company (NYSE:DIS) to a total of 6.6 million shares. It’s been a good year for media and entertainment stocks, and The Walt Disney Company (NYSE:DIS) is no exception having risen 50% in the last year. The company’s most recent fiscal quarter ended in March, with the 10-Q reporting that earnings had grown 32% versus a year earlier, so the rise in the stock price has somewhat tracked fundamental improvements in Disney’s business. Currently markets are expecting growth to continue, at least moderately, with the stock being valued at 20 times trailing earnings. The Walt Disney Company (NYSE:DIS) does have some very strong assets, including ESPN, and remains dedicated to pushing out its new content libraries from its Marvel and Lucasfilm acquisitions across its television, film, and theme park platforms.
Selling defensive consumer stocks. Two of Citadel’s three largest holdings by market value at the beginning of 2013 were McDonald’s Corporation (NYSE:MCD) and The Procter & Gamble Company (NYSE:PG). McDonalds and The Procter & Gamble Company (NYSE:PG) are similar in that they are commonly thought of as classic defensive stocks: in fact, both the fast food restaurant and the personal products company carry a beta of 0.3 and pay a dividend yield of just over 3% at current prices. However, Griffin cut his McDonald’s Corporation (NYSE:MCD) stake roughly in half in the first quarter of the year while selling over 80% of his The Procter & Gamble Company (NYSE:PG) shares. It’s possible that this is a signal that Citadel has become more bullish on the market. Of course, it’s also possible that the fund believes that high demand for safe assets has also made these stocks less attractively priced. Recent growth rates have been quite low at both McDonalds and The Procter & Gamble Company (NYSE:PG), and judging by sell-side forecasts that is expected to continue, yet partly because of their defensive characteristics they boast trailing P/E multiples in the high teens.
We don’t think you have to be bullish for Griffin’s move in these two stocks to make sense- it does appear that the market may be a bit too excited about the yield and relative safety that McDonalds and The Procter & Gamble Company (NYSE:PG) offer. EOG’s growth rates are impressive, though the stock price does account for quite a bit of that growth and it might be best to wait and see how future quarters compare to the trajectory that analysts are expecting. As for The Walt Disney Company (NYSE:DIS), it’s not a classic value stock either and we’d suggest comparing the company to its peers before deciding if its good performance and brand are enough to make it a buy given where it is trading.
Disclosure: I own no shares of any stocks mentioned in this article.
