Billionaire Steve Cohen’s Top Consumer Picks Include Starbucks

We track 13F filings from hedge funds, which report many of their long equity positions as of the end of the previous quarter, for a variety of purposes. One way we use this information is by developing investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds earn an excess return of 18 percentage points per year on average (read more about our small cap strategy). We also like to think of 13Fs as a list of recommendations from top managers, and so we can look at which stocks they like in a number of categories. Here are our thoughts on five of the largest consumer stock holdings which billionaire Steve Cohen’s SAC Capital Advisors owned at the end of December:

The fund increased its holdings of News Corp (NASDAQ:NWSA) to a total of 9.6 million shares, making the media company one of its top stock picks. News Corp is planning to break its business into two this year; a number of investors believe that this will allow management of the new companies to improve operations as the situation is similar to that of a spinout (learn more about the advantages of spinouts). The stock has risen 52% in the last year, partly on the general strength of media but also on these prospects. News Corp currently trades at 15 times consensus earnings for the fiscal year ending June 2014.

SAC also had Starbucks Corporation (NASDAQ:SBUX) as one of its ten largest holdings by market value after more than doubling its stake between October and December. Starbucks occupied the #2 slot in our list of the most popular restaurant stocks among hedge funds for the fourth quarter of 2012, just behind McDonald’s Corporation (NYSE:MCD). Find more restaurant stocks hedge funds love. While revenue and earnings both grew at double-digit rates in the fourth quarter of 2012 versus a year earlier, the stock is priced for high growth at a trailing P/E of 32. As a result we would avoid the stock at this time.

Read on for three more of Cohen’s consumer picks: