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ClearBridge’s Top Stock Picks for Early 2016

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ClearBridge is a Baltimore-based, long/short equity hedge fund. ClearBridge now contains what was formerly known as Legg Mason Capital Management, which was headed by famous stock picker Bill Miller. However, after Legg Mason Capital Management underperformed the broader market for several years, Mr. Miller stepped down as the firm’s chairman and CIO in 2013 and Legg Mason Capital Management became a part of ClearBridge Investments. Though Mr. Miller is still the portfolio manager of the mutual fund Legg Mason Opportunity Trust, it is not a part of ClearBridge Investments, instead operating under Legg Mason’s subsidiary LMM. Analysis done by Insider Monkey on ClearBridge’s 13F holdings in companies worth at least $1 billion shows that the long positions held by the fund delivered a weighted average returns loss of 2% in 2015. However, the firm’s qualifying long positions did much better in the fourth quarter, posting weighted average returns of 7.9%. Taking that into account, in this post we will analyze the fund’s top five equity holdings going into 2016, as revealed by its recently submitted 13F filing.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012.(see the details here).

Bill Miller
Bill Miller
Legg Mason Capital Management

#5 Wells Fargo & Co (NYSE:WFC)

– Shares Owned by ClearBridge (as of December 31): 2.65 million

– Value of Holding (as of December 31): $144.27 million

Let’s start with Wells Fargo & Co (NYSE:WFC), in which ClearBridge inched up its stake by 3% during the fourth quarter. After falling below the $50 level earlier this year, shares of Wells Fargo & Co (NYSE:WFC) are finding it hard to climb back above it and currently trade with year-to-date losses of 10.25%. The SEC recently charged the bank with defrauding investors through a $75 million bond offering that it underwrote for the now-bankrupt and defunct video game company 38 Studios in 2010. Some analysts believe there is a possibility that investing legend Warren Buffett could push Wells Fargo & Co and American Express Company (NYSE:AXP) towards a merger soon, as those two companies represent the largest and the fifth-largest equity holdings respectively of his holding company Berkshire Hathaway. At the end of December, Berkshire Hathaway owned nearly 480 million shares of Wells Fargo & Co.

#4 Amazon.com, Inc. (NASDAQ:AMZN)

– Shares Owned by ClearBridge (as of December 31): 238,803

– Value of Holding (as of December 31): $161.4 million

ClearBridge made a wise decision by reducing its stake in Amazon.com, Inc. (NASDAQ:AMZN) by 34% during the fourth quarter, amid a 32% rise in the company’s stock. That’s because Amazon.com, Inc. (NASDAQ:AMZN)’s stock has slumped hard this year, losing over 17% of its value since the beginning of 2016. Though the company delivered worse than expected numbers for its fourth quarter, investors and analysts remain optimistic about its future due to the spectacular growth exhibited by its cloud business, Amazon Web Services. Amazon recently signed a deal with Air Transport Services (NASDAQ:ATSG) under which the latter will be leasing 20 Boeing 767 freight aircraft to the former’s Amazon Fulfillment Services. In addition, Amazon will also hold warrants which will give it the right to acquire up to 19.9% of all outstanding shares of Air Transport Services over a five-year period. On March 10, analysts at Jefferies Group reiterated their ‘Buy’ rating and $775 price target on Amazon’s stock. Billionaire Andreas Halvorsen‘s Viking Global reduced its stake in the company by 15% to 2.56 million shares during the fourth quarter.

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