Even though the information in 13F filings is several weeks old by the time it is released, there are a number of ways for investors to at least get some contributions from analyzing the portfolios of hedge funds and other notable investors. First of all, even with the lag the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (read more about our small cap strategy). Second, even if one isn’t going to blindly follow them, why not get a list of stock picks from top names and then decide whether or not each name is a good value? Billionaire Stanley Druckenmiller has retired from managing Duquesne Capital, but he still files 13Fs. See what he owned at the end of December or read on for our thoughts on his five largest new positions from the fourth quarter of 2012:
His largest new pick was 4 million shares of US Airways Group, Inc. (NYSE:LCC), which has risen 76% in the last year as the company mergers with American Airlines and therefore gains more market power in an industry where consolidation may push up prices. 14% of the outstanding shares are held short- certainly in the past airlines have proven to be risky investments- and peers such as Delta Air Lines, Inc. (NYSE:DAL) would benefit from consolidation without the integration risk. With very low earnings multiples, we think that the industry is a good source of value prospects. Billionaire David Tepper’s Appaloosa Management is an investor in a number of airlines including US Airways (find Tepper’s favorite stocks).
Druckenmiller was also buying American International Group Inc (NYSE:AIG), contributing to the continued increase in hedge fund popularity which made the insurer the most popular stock among hedge funds for the fourth quarter of 2012 (see more of the most popular stocks). At a P/B ratio of 0.6, AIG is certainly cheap on a book basis. The valuation is higher in terms of the company’s earnings but we generally agree with the hedge fund community that AIG is a good value- we would probably target a valuation of 70 to 80% of the book value of the company’s equity.
Two high yield stocks were added to Druckenmiller’s portfolio: