Billionaire Ken Griffin and Boykin Curry Like These Two Stocks

CITADEL INVESTMENT GROUPBillionaire Ken Griffin and Citadel Investment Group finally pulled themselves back above their high-water mark earlier this year after losing billions during the financial crisis. The fund filed its 13F for the second quarter of 2012 in August, disclosing a number of long positions; some of the top-placed holdings in the reported portfolio were very large increases compared to the first quarter of the year (see more details about Citadel’s holdings). Boykin Curry IV is the current portfolio manager at Eagle Capital Management, which was founded by Curry’s father in 1988 and on average has outperformed the S&P 500 since then. Eagle has a value focus and also reported many of its holdings in its 13F filing (find Eagle Capital Management’s favorite stocks). Both of these funds are in Insider Monkey’s database and so we were able to compare them and pick out two stocks that both funds had large stakes in at the end of June: Pepsico (NYSE:PEP) and Wal-Mart (NYSE:WMT).

We’ll start with Pepsico, which was Citadel’s second largest position at the end of June with a total of 4 million shares. Eagle also added shares in the second quarter and reported ownership of 6.5 million. Pepsi is perhaps trading just a bit above pure value levels, at a trailing P/E of 19, but sell-side analysts expect growth next year and the P/E based on 2013’s earnings is only 17. Considering the 3% dividend yield and Pepsico’s low correlation with the broader market (its beta is 0.3), this would be a fair price for a global consumer company with a strong brand. In the first half of 2012 revenue was essentially unchanged from the first half of 2011, but higher COGS drove down earnings. This appears to have been driven by lower margins specifically in the American beverages segment, with the other three segments (American foods, EMEA, and Asia) showing little change in operating income compared to a year ago. Pepsico’s closest peer is Coca-Cola (NYSE:KO). It should be noted that Eagle had an even larger position in Coca-Cola than in Pepsico (partly because the fund apparently places a high value on Warren Buffett’s value-finding ability: Berkshire Hathway (BRK-B) is its largest reported position of all). Coca-Cola pays a lower dividend yield at current prices than Pepsico does, and its earnings multiples edge higher at 21 on a trailing basis and 18 on a forward basis. Coca-Cola does seem to be doing better than Pepsi in recent quarters, with a slight increase in revenue and essentially unchanged earnings in its last quarter compared to the same period in 2011. Between that and its brand, it may well deserve a slightly higher multiple.

Citadel’s buying of Wal-Mart brought its position to 3.2 million shares, well behind Eagle’s 8.5 million but still representing a large increase in Citadel’s holdings over the course of the quarter. The leading discount retailer’s stock also has a low correlation with the market at a beta of 0.4, and it trades at respectable value levels: its trailing price-to-earnings ratio is 15 and the forward multiple is 13. This low pricing comes despite respectable growth last quarter including growth in same-store sales. Between February and July (the fiscal year ends in January), Wal-Mart has increased its revenues 6% and its earnings per share 10% compared to the same period in 2011. The company also raised its guidance for 2012, shrugging off- or possibly expecting benefits from- a questionable consumer environment. Like Pepsico, Wal-Mart is the Blue Team to its rival’s Red: Target (NYSE:TGT) in this case. Target matches Wal-Mart’s earnings multiples- 15 trailing, 13 forward- as its more appealing brand name in certain circles makes up for its smaller scale.

Both of these companies seem well priced compared to their most closely associated peer. We would say that the big-box retailers are underpriced compared to the diversified food and beverage companies, and that Wal-Mart looks to be the cheapest of all as it relentlessly expands its earnings even at its massive size. The diversified food and beverage companies are a tougher call. We think that Coca-Cola deserves a very slightly higher multiple than Pepsico, and that’s exactly what it has. Smart investors are on either side (or, in the case of Eagle, both).

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!