We track 13F filings from hedge funds and other notable investors as part of our work researching investment strategies, and one of our findings has been 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 think that this is because small cap stocks receive less attention, and so are more likely to be undervalued (or overvalued for that matter). As such the small cap picks of individual funds can serve as potential sources of ideas for further research if after a brief look they seem to be good values. Read on for the five largest positions of billionaire Kerr Neilson’s Platinum Asset Management in stocks with market capitalizations between $1 billion and $5 billion as of the end of December (or see the full list of Platinum’s stock picks).
SINA Corp (NASDAQ:SINA), a Chinese web portal providing advertising services, was one of Platinum’s top picks with the fund owning 4.8 million shares at the end of December. SINA Corp (NASDAQ:SINA)’s stock price has fallen 18% in the last year, and business in the fourth quarter of 2012 was not particularly good: revenue was up only slightly versus a year earlier, and earnings fell 75%. That’s not good for a stock which currently trades at 32 times forward earnings estimates. Tiger Cub Robert Karr’s Joho Capital increased its holdings of SINA Corp (NASDAQ:SINA) by 73% in the fourth quarter of 2012 (find Karr’s favorite stocks).
Neilson and his team owned 9.3 million shares of Foster Wheeler AG (NASDAQ:FWLT), a $2.3 billion market cap engineering and construction company which builds facilities for energy companies and utilities, according to the 13F. Foster Wheeler AG (NASDAQ:FWLT) carries a high beta at 2.2, showing that the company is dependent on broader economic activity. Its most recent quarter showed steep declines in revenue and earnings; Wall Street analysts are projecting a recovery, and so the forward P/E is only 11, but we’d be hesitant considering the recent poor performance.
The fund reported a position of almost 16 million shares in Stillwater Mining (NYSE:SWC), which extracts metals including palladium and platinum. It’s another stock which tends to move in line with broader market indices, as the beta here is 2.8. Business has been down here as well, and the trailing earnings multiple is 26- so Stillwater will have to improve its financials considerably in order to justify its current valuation let alone prove undervalued. A number of market players are bearish as the most recent data shows that 20% of the outstanding shares are held short.