Billionaire Kerr Neilson’s Cheap Stock Picks Include Microsoft

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Value investors often start by looking at the price-to-earnings ratio of a stock, using either the trailing earnings or- because a stock grants ownership over future cash flows- analyst expectations for the next year. Sometimes stocks have low multiples because the business is in serious trouble, and earnings will end up declining going forward, but in other cases they can be a guide to value stocks and so we think that it can be useful to review a list of stocks with low multiples and decide if they are worth further research. Here are five stocks which billionaire Kerr Neilson’s Platinum Management (research more stocks Platinum likes) owned at the end of September and which had trailing and forward earnings multiples of 15 or lower:

Kerr Neilson

At almost 11 million shares, Platinum’s top pick in terms of market value on the 13F filing was Microsoft Corporation (NASDAQ:MSFT). Microsoft trades at only 8 times consensus earnings for the fiscal year ending in June 2014; that is an attractive multiple, but quite a bit of the company’s value depends on the success of Windows 8. As a result we think that it’s probably best to wait for more information before deciding if Microsoft truly is a good value or not. Microsoft held the #4 spot in our rankings of the most popular stocks among hedge funds in the third quarter of 2012 (see the full top ten list).

Another tech stock that the fund liked was Cisco Systems, Inc. (NASDAQ:CSCO), with just over 12 million shares in Platinum’s portfolio. Cisco was one of the ten tech stocks that hedge funds were crazy about in the third quarter (find more tech stocks hedge funds liked) and the company does have low earnings multiples: the trailing and forward P/Es are 13 and 10, respectively. Cisco also boasted 18% higher net income in its most recent fiscal quarter (ending in October 2012) compared to the same period in the previous fiscal year, and even though revenue growth was lower (at 6%) we think that investors should take a closer look at the company.

Neilson and his team reported a position of 2.6 million shares in Barrick Gold Corporation (NYSE:ABX). The gold miner’s stock price is down 29% in the last year as business has suffered; in the third quarter of 2012, sales fell 14% and this led to a 55% drop in earnings. Of course the company is highly exposed to gold prices as well- for better or for worse, depending on an investor’s thesis on gold. Vinik Asset Management, managed by former Magellan Fund head Jeffrey Vinik, was another holder of the stock at the end of the quarter (check out Vinik’s stock picks).

Two energy related stocks completed our list:

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