We track quarterly 13F filings from hundreds of hedge funds and other notable investors, including billionaire David Tepper’s Appaloosa Management (see a history of Tepper’s stock picks). Even given the fact that the information in these filings is a couple months old, there are still a couple ways to use it. For one, we have found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year and think that other strategies are likely possible as well. We can also look at individual managers’ filings and screen their picks against other criteria, including stocks bought by insiders (insiders should normally prefer to diversify their wealth, so insider purchases are generally taken as a signal of more confidence than usual in the company). Here are Tepper’s five largest holdings as of the end of March which at least one insider has bought within the last three months:
Appaloosa owned 4.3 million shares of American International Group Inc (NYSE:AIG) at the end of the first quarter of 2013. In addition, on May 20th a member of AIG’s Board of Directors bought 10,000 shares of stock at an average price of $45.20 per share. The insurer still carries a significant discount to the book value of its equity, at a P/B ratio of 0.7, and has remained one of the most popular stocks among hedge funds as value investors continue to like it. It’s also priced low in terms of earnings forecasts from Wall Street analysts, with a forward earnings multiple of 11. AIG lost its place as the most popular stock among hedge funds during Q1, but remained in the top three (find more stocks hedge funds loved).
General Motors Company (NYSE:GM) was another common pick between the fund- which had 5.7 million shares in its portfolio, per the filing- and a company insider. The automaker is another common value play, and trades at 11 times trailing earnings. Some bulls believe that US consumers will soon be forced to replace a historically aged auto fleet, generating high demand for new cars, and certainly analyst expectations are high at GM: the forward P/E comes out to 7, with a five-year PEG ratio well below 1. Warren Buffett’s Berkshire Hathaway owned 25 million shares of GM at the end of the quarter (check out Buffett’s favorite stocks).
Tepper and his team cut their stake in JPMorgan Chase & Co. (NYSE:JPM) between January and March, but the filing still disclosed ownership of 1 million shares. Considerable purchases by funds tied to a JPMorgan Chase insider took place in early May at prices a bit above $47. Even after a nearly 60% gain in the last year, the bank is valued right about at book. While revenue growth has not been very good recently- up only 1% last quarter compared to the first quarter of 2012- the earnings multiples are low and so we think that JPMorgan Chase also has value potential. Fisher Asset Management, managed by billionaire Ken Fisher, is one major shareholder in JPMorgan Chase (research more stocks Fisher owns).
According to the filing, Appaloosa owned 7.4 million shares of Mueller Water Products, Inc. (NYSE:MWA), a $1.2 billion market cap provider of valves and hydrants used in water systems. We tracked multiple insiders buying the stock in early May at prices of about $7 per share. The stock has more than doubled in the last year, which has brought it to a fairly premium valuation: the trailing and forward P/Es are 44 and 23, respectively. Revenue was up 13% in its most recent quarter compared to the same period in the previous fiscal year.
Another stock that multiple insiders have been buying is oil and gas company Hess Corp. (NYSE:HES), where billionaire Paul Singer’s Elliott Management has been pushing for changes in corporate strategy (more broadly, energy stocks have been ripe targets for activist involvement so far this year). Tepper bought about 480,000 shares during Q1 after not having owned any shares at the beginning of the year. Sell-side expectations for 2014 imply a forward P/E of 11, which is about in line with where larger oil and gas companies are trading.
Disclosure: I own no shares of any stocks mentioned in this article.
