Has Billionaire Ken Griffin Found Alpha In Small Caps Such As Hillshire Brands Co (HSH)?

Halcon Resources Corp (NYSE:HK) was another of Citadel’s small cap picks with the filing disclosing ownership of close to 16 million shares. Similarly to the other two E&P companies we’ve discussed, Halcon Resources Corp (NYSE:HK) focuses on the Bakken, Eagle Ford, and Utica shale plays. The business has seen very low profits on a trailing basis, even adjusted for special items. The sell-side is extremely bullish, with projected earnings for 2014 implying a forward P/E of only 8 and with the five-year PEG ratio being 0.6, but it would be risky to take these forecasts at face value.

Rounding out the fund’s five largest small cap holdings was Hillshire Brands Co (NYSE:HSH), even after Griffin slightly trimmed his stake during Q1. The food company primarily provides meat products (including under the Jimmy Dean and Ball Park brands). Food stocks are hot in the current market, with earnings multiples generally being high in absolute terms as investors chase low betas (or attempt to follow Warren Buffett, whose Berkshire Hathaway is acquiring Heinz). Hillshire Brands Co (NYSE:HSH) is no exception, with the stock currently valued at a forward P/E of 20. Billionaire John Paulson’s Paulson & Co. cut its stake by 41% during Q1, but still owned 3 million shares at the end of March (check out Paulson’s stock picks).

We aren’t too sure of either case for Hillshire Brands Co (NYSE:HSH), and would avoid the stock. LSI Corp (NASDAQ:LSI) is in need of a turnaround, and while it could be worth watching the recent financials don’t suggest that the company is doing well right now. As for the E&P companies, the projections for Halcon Resources Corp (NYSE:HK)’s future earnings are quite strong, and so that company might be worth a look though of course oil majors aren’t exactly expensive in the current environment and may offer more stability.

Disclosure: I own no shares of any stocks mentioned in this article.