Six to seven weeks after the end of each quarter, hedge funds and other major investors file 13Fs with the SEC to disclose many of their long equity positions as of the end of the quarter. We track 13F filings as part of our work developing investing strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). Another way to use 13Fs is to look at individual manager’s stock picks, either overall, according to a set of criteria, or in different sectors of the market. Stanley Druckenmiller was one of George Soros’s portfolio managers as well as the head of Duquesne Capital, and has become a billionaire due to his investing prowess. Here are four of Druckenmiller’s top picks in the healthcare sector at the end of December (or see the full list of stocks from his 13F):
The filing disclosed ownership of 2.4 million shares of Merck & Co., Inc. (NYSE:MRK), up 22% from the end of September. Last quarter Merck experienced a small decline in sales, but thanks to contracting margins net income was down 40%. However, Wall Street analysts believe that the company will rebound with their estimates placing the current price at 12 times 2014 earnings. Merck, like many large pharmaceutical companies, is a good candidate for many income or defensive investors’ portfolios with a beta of 0.4 and a dividend yield close to 4%. AQR Capital Management, managed by Cliff Asness, owned 3.1 million shares of Merck according to that fund’s own 13F (check out Asness’s stock picks).
Pfizer Inc. (NYSE:PFE) led our list of the most popular healthcare stock among hedge funds in the fourth quarter of 2012, with 77 funds and other investors which we track in our database reporting a position (find more healthcare stocks hedge funds loved). Druckenmiller was one of these, as he kept his holdings constant at about 3.4 million shares. Pfizer has a bit more market exposure than Merck, at least in quantitative terms, with a beta of 0.7; the dividend yield, while still respectable at 3.4%, is lower than what we found there. It is cheaper than that peer on a trailing basis but lower expectations for improvement in the next two years leave it at an equal forward earnings multiple of 12.
See two more healthcare stocks Druckenmiller owned: