We maintain a database of quarterly 13F filings from hundreds of hedge funds and other notable investors, which we have used to research investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year). Some investors also like to use 13Fs as sources of initial investment ideas for further research. The most recent 13Fs are generally old, disclosing many long equity positions as of the end of March, but we can improve their utility as a source of investment ideas by looking for stocks that a fund has owned for at least two years. Read on for our thoughts on billionaire Richard Chilton’s Chilton Investment Company’s five largest positions from its most recent filing which were also among its top 30 picks at the end of March 2011, or see the full list of the fund’s stock picks over time.
Chilton and his team reported a position of 5.1 million shares in LKQ Corporation (NASDAQ:LKQ), a $7.7 billion market cap replacement auto parts distributor. Markets are pricing in high growth at the company, with LKQ Corporation (NASDAQ:LKQ)’s valuation giving it trailing and forward earnings multiples of 29 and 20 respectively. While the company’s revenue has been up at double-digit rates, going by recent reports, net margins have been shrinking and as a result earnings growth has been much more modest. Performance therefore doesn’t seem to be high enough to make it a buy.
The fund had 1.3 million shares of The Home Depot, Inc. (NYSE:HD) in its portfolio. The home improvement store has been a popular way to play housing, and is up almost 60% in the last year. Net income has been increasing, but its growth rate lags that percentage by a good deal and so The Home Depot, Inc. (NYSE:HD) currently trades at 26 times trailing earnings. That seems like a pretty aggressive price, so investors should probably wait for more improvements at the company. Renaissance Technologies, founded by billionaire Jim Simons, more than doubled its holdings of The Home Depot, Inc. (NYSE:HD) during Q1 2013 (find Renaissance’s favorite stocks).
Avago Technologies Ltd (NASDAQ:AVGO), a semiconductor company with a market capitalization of $9.6 billion, was another of Chilton’s long term stock picks. Like many of the other stocks listed in the filing, it is priced outside of value territory at a trailing P/E of 18. In addition, Avago Technologies Ltd (NASDAQ:AVGO)’s business has actually been struggling with both revenue and profits declining in its most recent quarterly report compared to the same period in the previous year. Wall Street analysts expect this trend to recover and EPS to increase next year, but investors should probably be skeptical.