We have done research on 13F filings and have 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 (learn more about our small cap strategy). These filings, each of which discloses many of a hedge fund’s long equity positions as of the end of the quarter (the end of Q4 2012 in this case), can be a useful source of information in other ways. We like to analyze filings from individual funds to see what their top picks were and also to see what new stocks they had added since the previous quarter. We have gone through the newest 13F from billionaire Louis Bacon’s Moore Global (see the full list of stocks from the filing) and here are our thoughts on that fund’s five largest new holdings:
Moore’s largest new stock pick was Bank of America Corp (NYSE:BAC), reporting a position of almost 12 million shares. Bank of America was one of the most popular financial stocks among hedge funds in the fourth quarter of 2012 (find more financial stocks hedge funds love). There is a large discrepancy between the bank’s value in terms of the book value of its equity (the P/B ratio is a low 0.5) and what happens when we look at the state of its business (plunging revenue and earnings last quarter compared to the fourth quarter of 2012, and a high trailing P/E). Other large banks are more expensive on a book basis but might be less risky.
Another popular stock- in fact, the new most popular stock among hedge funds- that Bacon was buying between October and December was American International Group Inc (NYSE:AIG). See what other stocks rounded out the top five. AIG also trades at a significant discount to book value, with a P/B of 0.6, and at 9 times analyst expectations for 2014. Our thinking in regards to AIG is that while the company has not yet proven reliably enough to merit trading at book value it’s likely that a smaller discount is appropriate. A crucial factor will be how quickly mutual funds and other institutions move back into the stock.
Read on for three more new stock picks, including a major media company: