Billionaire Ken Griffin got his start by trading options in his Harvard dorm room. Having founded Citadel Investment Group in 1990 with only $4 million, Griffin now manages one of the largest hedge funds in the world. He utilizes a model-based strategy focused on quantitative methods. In reviewing Citadel’s recent 13F filing we found five defensive stocks he loves (check out Ken Griffin’s new picks).
The Procter & Gamble Company (NYSE:PG) is a consumer packaged goods company trading in line with the majority of its peers. After increasing its stake over 300% last quarter, PG is now Griffin’s largest 13F holding. Procter & Gamble trades at 22x earnings, close to Colgate’s 20x and Church & Dwight’s 23x multiples. Worth noting is that Procter does pay a robust dividend yielding 3.6%. Procter & Gamble has been looking to cut down on spending and recently announced plans to reduce costs by up to $10 billion over the next five years. These cost savings could add 10% to its operating margin. Helping insulate the company from too much volatility – with a beta of 0.5 – is its limited exposure to emerging markets – less than 40% of sales. Warren Buffett was the top fund owner in Procter & Gamble last quarter with over 52 million shares (see Warren Buffett’s newest picks).
Costco Wholesale Corporation (NASDAQ:COST) was a 140% increase for Griffin last quarter and is now the fund’s 8th largest 13F holding. The bulk-retailer is expected to grow revenues 7% in FY2013 on the back of 7% growth in same store sales and 5% growth in store square footage. Driving this defensive play is an expected membership fee increase and market share gains via its upscale product mix, which appeals to a more affluent customer base. Costco is also expanding into international markets, which should help drive its 13% long-term expected earnings growth rate. Costco also has a beta of only 0.7, and trades cheaply at 0.4x sales, below Wal-Mart (0.5x) and Target (0.6x). Mega-billionaire Bill Gates was Costco’s top fund owner last quarter (check out Bill Gates’ biggest bets).
ConAgra Foods, Inc. (NYSSE:CAG) is Griffin’s 21st largest 13F holding and recently announced plans to acquire Ralcorp Holdings. Although we believe this will be a long-term positive for future growth, there are a number of concerns related to the debt burden ConAgra will now bear. The Ralcorp deal is valued at $6.8 billion, but the debt load caused S&P to cut its credit rating to just one level above junk. S&P now has a triple B-minus rating on the company. Despite its debt concerns, ConAgra does pay a handsome 3.4% dividend yield.
Who’s the best of the rest?