In May, billionaire Louis Bacon’s Moore Global filed its 13F with the SEC for the first quarter of 2013. We don’t recommend blindly following hedge funds’ picks, among other reasons because the information is often out of date by the time it is released to the public, but there are a few techniques investors can use to take advantage of the included information. For one, we’ve found 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 think that hedge fund managers’ picks can be screen according to a variety of criteria, including low price-to-earnings multiples, to generate initial investment ideas and allow investors to further research any interesting names. Read on for our thoughts on the fund’s five largest positions in stocks with both trailing and forward P/Es of 13 or less (or see the full list of Bacon’s stock picks).
Moore Global increased the size of its position in Assured Guaranty Ltd. (NYSE:AGO) by 43% during the first quarter of this year, making the $4.2 billion market cap insurer of public finance and infrastructure bonds one of the fund’s largest holdings. Assured Guaranty is cheap in terms of its earnings- for example, the trailing earnings multiple is only 9- and compared to the book value of its assets (the P/B ratio is 0.9). The stock price is highly correlated to the broader economy- the beta is 2.0- but it is still interesting at these valuation metrics.
Another cheap stock from the finance & insurance sector in the fund’s portfolio is JPMorgan Chase & Co. (NYSE:JPM). The megabank is priced right about at book value, and at 9 times earnings whether we use its trailing numbers or forecasts for 2014 from Wall Street analysts- even after a more than 50% gain over the last year. Earnings have been up nicely going by the company’s reports and the dividend yield is almost 3%. Billionaire Ken Fisher’s Fisher Asset Management owned close to 13 million shares of the stock according to its own 13F (find Fisher’s favorite stocks).
Bacon and his team were buying International Business Machines Corp. (NYSE:IBM) between January and March, closing Q1 with 350,000 shares in their portfolio. The trailing and forward P/Es are 13 and 11, respectively, but the business appears to be struggling with changes in the technology environment: in the first quarter of 2013, revenue fell by 5% versus a year earlier with earnings down as well. We suppose IBM could improve EPS through share buybacks, as cash flow is quite high, though we’d generally prefer that value ideas be recording increases in revenue and net income.