Stanley Druckenmiller shut down his hedge fund in 2010, but continues to manage money and his investments are reported on 13F filings. These filings make public what a hedge fund or other major investor owned at the end of each quarter about six weeks afterward. As a result the general public can evaluate each investor’s new filing and pick out trends in their buying and selling activity. Here are some things that we noticed when comparing Druckenmiller’s most recent 13F to previous filings:
Oil majors. Druckenmiller had several new positions in this 13F portfolio, and the two largest were stakes in Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX). We’ve thought of these two large oil companies as good energy investments, with BP being a good pick as well if an investor is willing to take on a bit more risk to get a stock that is a bit cheaper in terms of earnings multiples. Exxon Mobil and Chevron aren’t so bad on a P/E basis themselves: they trade at 9 and 8 times their respective trailing earnings even though Chevron’s market cap is about $200 billion and Exxon Mobil’s is about twice that. There is considerable risk here due to oil prices, but we think that they’re good picks for a long-term investor. Billionaire David Shaw’s D.E. Shaw had nearly doubled its own holdings of Exxon Mobil during the second quarter of the year.
Selling restaurants. Druckenmiller and his team were less bullish on quick service restaurants, closing its positions in both Yum! Brands and Chipotle Mexican Grill, Inc. (NYSE:CMG). Fellow billionaire David Einhorn of Greenlight Capital had listed Chipotle as one of his short picks at the Value Investing Congress in early October- after Druckenmiller would have sold his shares- and the stock is down 18% since then as the company has failed to meet the Street’s growth targets. See what stocks billionaire David Einhorn likes instead. Chipotle now trades at 30 times trailing earnings, which seems appropriate for its growth prospects in bringing higher-end Mexican food to the quick service space. Yum, meanwhile, has been turning in strong growth rates and the owner of the Taco Bell, Pizza Hut, and KFC brands carries a trailing P/E of 21. We think that we’d avoid the stock given how dependent it is on the Chinese market.
Adding to homebuilders. Lennar Corporation (NYSE:LEN) and D.R. Horton, Inc. (NYSE:DHI) were two of the largest positions in the 13F portfolio at the end of June, and over the course of the third quarter Druckenmiller added to each. Each of these companies’ stock price has risen at least 60% in the last year as investors see improvement in the housing market; earnings at each company more than doubled in its most recent quarter compared to the same period in the previous year. The trailing P/Es at Lennar and DR Horton are actually quite low- 13 and 7, respectively- though sell-side analysts expect earnings at each company to decline in the next fiscal year resulting in considerably higher forward P/Es. We think that the homebuilding industry might be worth a closer look to see how well these companies and their peers can sustain their businesses, since historical earnings seem to be suggesting that they are far from speculative investments.
We think that Druckenmiller was probably right to sell out of his restaurant stocks, as Yum and Chipotle don’t look like good values at their current prices. As we’ve mentioned, we like his move into Exxon Mobil and Chevron and think that even if oil prices remain about flat these companies should continue to generate plenty of earnings to justify their current valuations. The homebuilding theme is also interesting- with the stock prices rising, Druckenmiller is confident enough in their prospects to add shares rather than take profits- and the industry as a whole is likely worth investigating.