This week many hedge funds and other major investors are filing their 13Fs for the fourth quarter of 2012, as these filings (which publicly disclose many of a fund’s long U.S. equity positions as of the end of December) are due by February 15th. 13F filings provide a number of opportunities for investors. We like to use them to help develop investment strategies, including our most popular small cap stocks among hedge funds portfolio. The most popular small cap stocks among hedge funds, which we listed in our August 2012 newsletter, produced an excess return of 18 percentage points between September and January (read more about our hedge fund strategies). We also like to use individual fund filings as a list of suggestions that we can then research so investors are more aware of the company. Here are five of John Levin’s Levin Capital Strategies’s largest holdings as of the beginning of 2013 (see Levin’s stock picks over time):
The fund owned 4.3 million shares of Eaton Corporation, PLC (NYSE:ETN), up from 3.1 million shares three months earlier. Eaton is a provider of electrical components and has a market capitalization of $23 billion. Earnings were down sharply in its most recent quarter compared to the same period in the previous year, though revenue was up. Eaton trades at 17 times trailing earnings, which might be a little high for us to consider it as a value stock. Billionaire Ken Griffin’s Citadel Investment Group was buying Eaton in the third quarter of 2012 (find Griffin’s favorite stocks).
Levin also increased its holdings of large pharmaceutical company Pfizer Inc. (NYSE:PFE). Billionaire Ken Fisher of Fisher Asset Management named Pfizer his top stock pick for 2013 in December of last year (check out more stocks he likes and research Fisher’s previous filings). In the fourth quarter of 2012, the company saw a 10% decline in revenue and an abnormal bump in net income. At a trailing P/E of 14 it might be worth researching the company further. Pfizer also pays a dividend yield of 3.6% and so may be of interest to income investors.
See three more of Levin’s stock picks, including a major bank:
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.
