Crispin Odey’s Top Stock Picks

Crispin Odey is the founder of Odey Asset Management, a hedge fund based in London. Prior to founding his own hedge fund, Odey worked at Barings Asset Management, where he managed the Baring Euorpean Growth fund. In 2008, Odey successfully predicted a credit crush and bet that Bear Stearns would go bankrupt. Odey made himself 28 million pounds in that year. Odey’s Allegra International Fund invests worldwide and managed to beat the MSCI TR Net World by 2.7 percentage points per year since its inception in early 2007. Recently, Odey Asset Management reported its latest U.S. stock holdings in a 13F filing. We are going to take a closer look at its big bets and decide whether investors should imitate these stock picks.

Crispin Odey

It seems that Crispin Odey likes financial stocks. The top three positions in his 13F portfolio are Wells Fargo & Co (WFC), Citigroup Inc (C), and JPMorgan Chase & Co (JPM). Most financial stocks were hit hard by the European debt crisis last year. We think it is tricky to invest in financial stocks in the short-term. They have great potential to grow as they are currently trading at low multiples, but we don’t really know what’s going to happen in Europe. Therefore, we recommend these stocks for long-term investors who won’t mind short-term swings in prices.

WFC, C, and JPM are all very popular among hedge funds. There were nearly 80 hedge funds reported owning JPM in their 13F portfolios at the end of the third quarter. Odey had $75 million invested in JPM at the end of last year. John Paulson’s Paulson & Co and Jim Simons’ Renaissance Technologies also both invested around $100 million in JPM. JPM has a strong balance sheet and expanding profit margins. JPM has attractive valuations too. Its forward P/E ratio is 7.18 and it is expected to grow at about 8% per year over the next five years. This means that its P/E ratio for 2014 is only about 6. WFC and C have low valuations too. WFC’s 2014 P/E ratio is 7 and C’s forward PE ratio is 6.

Odey also likes technology stocks. At the end of last year, Odey had $56 million invested in Microsoft Corp (MSFT) and another $42 million invested in Intel Corp (INTC). He also boosted his INTC stakes by over 40% during the fourth quarter of 2011. INTC also has a strong balance sheet and solid cash flows. It is one of the best companies in the semiconductor industry. Like most other tech giants, INTC is also trading at low multiples. It has a forward P/E ratio of 10.37 and its EPS is expected to grow at over 10% per year in the next five years. This indicates that its P/E ratio for 2014 is only 8.5, versus 11.9 for its major competitor Texas Instruments Inc (TXN). Together with Odey, forty-two hedge funds disclosed owning INTC at the end of September. For example, Ken Fisher’s Fisher Asset Management had $463 million invested in INTC at the end of last year. Jim Simons, Jean-Marie Eveillard, and Warren Buffett were also bullish about this stock.

We are bullish about MSFT as well. Its forward P/E ratio is 11.7 and it is expected to grow its EPS by around 9% annually. Microsoft is one of our favorite dividend growth plays. The stock has been increasing its dividend payments since 2005 and can afford to double its payments. Last fall Microsoft’s quarterly dividend was boosted by 25% but the stock also appreciated by more than 25% since its last dividend payment.

Overall we like Odey’s stock picks. We are bullish about his three biggest bets on WFC, C, and JPM. We recommend JPM the most as it has the highest dividend yield of 2.6% and the lowest beta. We also like his investments in MSFT and INTC.

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