We track quarterly 13F filings from hundreds of hedge funds and other notable investors, having found that the information in these filings can be useful in developing investment strategies; for example, the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year. In addition, while the information in 13Fs is a bit out of date by the time it is released and so we don’t recommend blindly following hedge fund picks, it’s also possible to treat individual filings as lists of free initial investment ideas- similarly to the process of running a stock screen- and then performing further research on any interesting names. Read on for our thoughts on the five largest stock positions as of the end of March from Curtis Macnguyen’s Ivory Capital (or see the full list of the fund’s stock picks).
Ivory reported owning 3.5 million shares of American International Group Inc (NYSE:AIG) in the filing. The insurer is arguably a value play in that it trades at a significant discount to the book value of its equity, with a P/B ratio of 0.7. Of course, American International Group Inc (NYSE:AIG)’s struggles during the financial crisis probably mean that it doesn’t deserve to trade at book, but Wall Street analysts believe that earnings will be good enough in 2014 to result in a forward earnings multiple of 11. As a result we think it’s worth looking into American International Group Inc (NYSE:AIG)’s upside potential.
Macnguyen and his team initiated a position of 3.3 million shares in Morgan Stanley (NYSE:MS) between January and March of this year. Morgan Stanley (NYSE:MS)’s stock price has been a strong performer over the last year, rising by nearly 90%. The sell-side is also bullish on the company and so even with this rise their forecasts have the stock valued at 10 times forward earnings estimates. This is actually about par for the course among megabanks; Morgan Stanley is, we’d note, different from Citigroup Inc. (NYSE:C) or Bank of America Corp (NYSE:BAC) in being more a pure play investment bank.
The fund owned about 80,000 shares of Google Inc (NASDAQ:GOOG) at the end of Q1. The technology company took a hit to its earnings after acquiring Motorola Mobility Holdings, but now due to the integration of that business unit and the organic growth of the advertising business it is boasting double-digit growth rates on both top and bottom lines. The forward P/E of 17 indicates that markets have priced in moderate earnings growth going forward. In the first quarter of the year, Google Inc (NASDAQ:GOOG) was one of the most popular stocks among hedge funds (check out the full top ten list).
According to the 13F, Macnguyen had 2.1 million shares of General Motors Company (NYSE:GM) in his portfolio at the beginning of April. Business was down slightly in the first quarter of 2013 versus a year earlier, partly due to weak European sales, but analysts are bullish on the auto industry in general. In the case of GM, this is supposed to result in substantial earnings growth over the next several years. General Motors Company (NYSE:GM)trades at 12 times trading earnings, but the five-year PEG ratio is only 0.7. We think we’d want to see better performance before considering it a value stock, however.
There are a number of interesting picks here, though some (such as General Motors Company (NYSE:GM) and Western Digital Corp. (NASDAQ:WDC)) are dependent on stabilizing their businesses in response to recent trends and as we’ve mentioned Google Inc (NASDAQ:GOOG) as priced expensively enough that it is dependent on future growth being up to expectations. Morgan Stanley and AIG also look like potential values though certainly Morgan Stanley’s peers tend to have similar forward earnings multiples.
Disclosure: I own no shares of any stocks mentioned in this article.
