Editor’s Note: This article has been amended to better reflect the situation with CommonWealth REIT and Corvex Management. Insider Monkey apologizes for the error.
In May, Jeffrey Altman’s Owl Creek Asset Management filed its quarterly 13F with the SEC, disclosing many of its long equity positions in U.S. stocks as of the end of March. Even though the information in 13Fs is a bit stale by the time these filings are released, we still believe there are a few ways for investors to make use of it. For one, we’ve found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year and think that more strategies are possible as well. We also think that investors can treat picks from individual 13Fs as free investment ideas, performing research on any interesting suggestions from fund managers. Here are our thoughts on five of Owl Creek’s largest single-stock positions from its most recent 13F (or see the full list of the fund’s stock picks):
Altman and his team owned 7.1 million shares of Yahoo! Inc. (NASDAQ:YHOO) at the end of the first quarter of 2013. New CEO Marissa Mayer has completed the company’s purchase of Tumblr, and with Yahoo! Inc. (NASDAQ:YHOO) apparently a bidder for Hulu as well it’s clear that she now plans to transform the Internet portal through acquisitions. We would be concerned about valuation and integration risk, however. Billionaire Dan Loeb’s Third Point, which played a critical role in replacing Yahoo! Inc. (NASDAQ:YHOO)’s former CEO with Mayer, had 62 million shares in its portfolio according to its own 13F (find Loeb’s favorite stocks).
Hertz Global Holdings, Inc. (NYSE:HTZ) was another of Owl Creek’s top picks; the filing disclosed ownership of 5.5 million shares of the equipment and auto rental company. With demand for construction and industrial equipment being dependent on macro factors, Hertz Global Holdings, Inc. (NYSE:HTZ) features a high beta of 2.8. The company’s revenue has been up, and Wall Street analysts are projecting strong gains in terms of earnings: the stock’s current valuation comes out to 10 times forward earnings estimates, with Hertz Global Holdings, Inc. (NYSE:HTZ)’s five-year PEG ratio being well below 1. We’re interested, though we’d warn that the stock is dependent on actually seeing higher earnings.
Another company which the fund likes and which the sell-side expects to improve considerably over the next year and a half is Metlife Inc (NYSE:MET). At a market capitalization of $53 billion, Metlife is valued at only 8 times consensus earnings for 2014 and at a significant discount to the book value of its equity as well. Recent actual earnings numbers haven’t been particularly good, though revenue was up 9% in its last quarterly report compared to the first quarter of 2012. We’d note that Metlife Inc (NYSE:MET) is another high-beta stock.