13F filings are rolling in for the end of December 2012; these filings disclose many of a hedge fund or other major investor’s long equity positions as of the end of the quarter, which in this case provide a picture of what fund managers liked going into 2013. There are multiple ways for investors to use these filings. We like to aggregate them into a database and then find the most popular stocks among hedge funds; the stocks we named as the most popular small cap picks in our August newsletter produced an excess return of 18 percentage points between September and January (read more about our hedge fund strategies). Another tool is to go fund by fund and see what stocks that manager would “recommend” to you- for free- and then do a quick pass looking at the company. Iridian Asset Management, a fund managed by David Cohen and Harold Levy, has filed its 13F for Q4. Read on to see what we think of its top picks and compare them to previous filings.
Eastman Chemical Company (NYSE:EMN) was Iridian’s largest holding by market value as the fund reported a position of 4.4 million shares. While Eastman’s revenue was up 26% in the fourth quarter of 2012 compared to the same period in the previous year, net income has been low on a trailing basis and the trailing P/E is 25. Wall Street analysts expect considerably higher earnings over the next couple years, and so the forward P/E is only 10, but we would still be cautious. Viking Global, managed by Tiger Cub Andreas Halvorsen, had reported owning over 6 million shares at the end of September (see Halvorsen’s stock picks).
The fund owned 5.1 million shares of Wyndham Worldwide Corporation (NYSE:WYN), up slightly from three months earlier. The $7.8 billion hotels and hospitality company is another whose recent performance has not been particularly strong- in its most recent quarterly report, earnings were down slightly from a year earlier- and that isn’t a positive with the stock trading at 22 times trailing earnings. Growth estimates from the sell-side are high enough for a five-year PEG ratio of 1. Billionaire Stephen Mandel’s Lone Pine Capital had 5.9 million shares in its portfolio at the end of the third quarter (find Mandel’s favorite stocks).
See three more of Iridian’s top picks: