Hedge Fund Levin Capital Strategies’ Stock Picks for 2013

JPMorgan Chase & Co. (NYSE:JPM), which was one of the most popular stocks among hedge funds in the third quarter of 2012 (see the full top ten list), was another of Levin’s favorite stocks in Q4. The fund entered 2013 with 4.6 million shares of the megabank in its portfolio. We like the combination of value and stability that JPMorgan Chase offers: even with its decent reputation compared to banks such as Bank of America Corp (NYSE:BAC) and Citigroup Inc. (NYSE:C) it still trades at a small discount to the book value of its equity and at 9 times forward earnings estimates; that forward P/E is in line with how those peers are valued.

Levin upped its stake in Medtronic, Inc. (NYSE:MDT) from about 3 million shares at the beginning of October to 4.4 million shares at the end of December. In Medtronic’s most recent quarterly report, for the quarter ending in October, net income was down 26% from a year earlier and revenue growth, while positive, was only modest. While the earnings multiples are low for a large-cap company- the trailing P/E is 14, for example- we don’t like the company’s recent performance and would avoid it for now. Diamond Hill Capital, managed by Ric Dillon, is another major Medtronic shareholder (research more stocks Diamond Hill owns).

Macy’s, Inc. (NYSE:M) rounded out Levin’s five largest 13F holdings. The department store has actually been reporting decent numbers recently, and is a candidate for value status with trailing and forward P/Es of 12 and 11 respectively. Analyst expectations imply a five-year PEG ratio of 0.9. We don’t particularly like the industry but the value metrics look good and the company’s performance appears acceptable. Lee Ainslie’s Maverick Capital initiated a position of 5.7 million shares in Macy’s during Q3 2012 (find more stocks Ainslie was buying).

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

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