Billionaire Steve Cohen and his hedge fund SAC Capital Advisors have been in the news recently as the government investigates related hedge funds for suspicious trading activity. The fund’s success, despite its large size (SAC recently had $14 billion under management), has made it followed by many in the financial community. We have gone through the fund’s most recent 13F filing (see Cohen's stock picks) and identified some stocks which have high upside potential, as measured by having a low PEG ratio (which is determined by the P/E multiple and forecasted earnings growth rates). Earnings projections aren’t always accurate, but they can at least offer a quantitative measure of a company’s potential. Here are five stocks which SAC reported owning at the end of the third quarter with low PEG ratios:
The hedge fund moved heavily into $14 billion market cap oil and gas company EnCana Corporation (NYSE:ECA), with its position of 5.3 million shares being much larger than what SAC had owned at the beginning of July. According to sell-side expectations, the PEG ratio is 0.4. Encana also pays a dividend yield of about 4%, and it might be worth taking a closer look at the company. Third Avenue Management, which is managed by Marty Whitman, owed 4.2 million shares according to that fund’s 13F (find more stocks Third Avenue owned).
Cohen and his team liked American International Group, Inc. (NYSE:AIG), increasing SAC’s stake to a total of 8.7 million shares. AIG’s P/B ratio is 0.5, representing quite a large discount to the book value of the insurer’s equity, and according to analyst expectations it is priced cheaply at a PEG ratio of 0.4. It is a good candidate for value status. Apparently a number of investors liked the stock last quarter: according to our database of 13F filings from hedge funds and other notable investors, AIG was the third most popular stock after not being in the top ten three months earlier. See the rest of the top ten stocks.
Apple Inc. (NASDAQ:AAPL) was another popular stock among hedge funds- the most popular, in fact- that SAC owned. Apple’s trailing P/E is only 12, which seems difficult to square with its recent high growth rates; even if earnings growth becomes more modest, it could be undervalued at that multiple. Billionaire David Shaw’s D.E. Shaw had over $1 billion invested in Apple Inc. (NASDAQ:AAPL) at the end of the quarter (check out D.E. Shaw's favorite stocks). We would expect at least low growth from the company and so we would consider Apple Inc. (NASDAQ:AAPL) a buy.