Price-to-earnings multiples are crude metrics, but are still at the core of many value investing approached because they concisely put a company’s market valuation in the context of its current performance. In particular, we think they are useful for narrowing down a cluster of stocks into a more reasonable number. Investors can then briefly analyze these companies and then move them on to the next stage of their investment process if they pass muster. Here are five stocks which billionaire Stanley Druckenmiller reported owning in his most recent 13F filing which have both trailing and forward P/E multiples of 13 or lower (or research more stocks Druckenmiller liked):
Druckenmiller’s top pick was Exxon Mobil Corporation (NYSE:XOM), initiating a position of 1.3 million shares. Exxon Mobil made our list of the most popular energy stocks among hedge funds in the third quarter of the year (see the rest of the top ten list). Its 2013 earnings multiple of 11 represents a premium to many oil majors, though it is something of a market leader for the industry and while it did report declines in revenue and earnings in its most recent quarterly report these decreases tended to be steeper at its peers. We think that the company could make for a good long term stock pick.
Druckenmiller also initiated a position in another cheap oil major, Chevron Corporation (NYSE:CVX). Chevron carries trailing and 2013 P/Es of 10 and 9, respectively; it is one of the other oil companies priced slightly lower than Exxon Mobil. It also has turned in a poorer financial performance recently; sales were down 10% in Q3 2012 versus a year earlier and net income fell 33%. As a result investors who are interested in big oil have a choice as to whether they want to pay a premium for a somewhat better company. Billionaire Ken Fisher’s Fisher Asset Management increased its holdings of Chevron during the third quarter of 2012 and closed September with 3.6 million shares in its portfolio (check out Fisher's stock picks).
Two banks and an energy services company completed our list of cheap Druckenmiller picks: