Ken Heebner’s High Upside Potential Stock Picks Include Citigroup Inc (C)

Editor’s Note: Related tickers: Citigroup Inc (NYSE:C), Whirlpool Corporation (NYSE:WHR), Delta Air Lines, Inc. (NYSE:DAL), Rock-Tenn Company (NYSE:RKT), Hertz Global Holdings, Inc. (NYSE:HTZ)

In May, Capital Growth Management, managed by Ken Heebner, filed its 13F for the first quarter of 2013 with the SEC. Even with the inherent delay which comes with 13F filings, we’ve found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year, and we think that more strategies are possible as well. Another common use of these filings is to screen them according to a variety of investment criteria- not to blindly imitate top investors, but to further refine their initial investment ideas. The PEG ratio takes into account both the P/E multiple and analyst expectations of future earnings growth rates. While analyst forecasts are often inaccurate, this is at least one way to account for both a stock’s growth prospects and value status. Here are Capital Growth’s five largest holdings as of the end of March in stocks with five-year PEG ratios less than 1 (or see the full list of Heebner’s stock picks).

Leading our list is the asset management firm’s largest holding at the end of Q1, Citigroup Inc (NYSE:C). Citigroup Inc (NYSE:C), as it happens, was one of hedge funds’ ten favorite stocks during the quarter (check out our full top ten list). Analyst expectations for next year imply a forward earnings multiple of 9, with continued improvements on the bottom line beyond that points resulting in a PEG ratio of 0.9. Citi also should be noted for trading at a discount to the book value of its equity, and in fact its earnings have been up strongly going by recent reports.

Heebner and his team reported a position of 1.8 million shares in Whirlpool Corporation (NYSE:WHR). The household appliance company has more than doubled in price in the last year, with many investors seeing it as a way to play a rising housing market. The sell-side agrees, with a PEG ratio of only 0.5. With earnings more than doubling in the first quarter of 2013 versus a year earlier (though we’d note this came entirely through higher margins), the trailing P/E is 18 which would certainly be an attractive valuation if we were confident high growth would continue.

Capital Growth Management cut its stake in Delta Air Lines, Inc. (NYSE:DAL) by 34% but still owned 7.3 million shares at the beginning of April. Airlines have done well over the last year as bulls have hoped that the merger of US Airways and American, by reducing competition, will increase companies’ pricing power. Still, a general unease among investors for getting into the traditionally prone to bankruptcy industry has left valuations arguably in value territory. Consensus forecasts for 2014 imply a forward earnings multiple of only 6.

According to the 13F, Heebner had 1.3 million shares of $7.5 billion market cap packaging products company Rock-Tenn Company (NYSE:RKT). In its most recent quarter, Rock-Tenn Company (NYSE:RKT)’s revenue was essentially flat compared to the same period in the previous fiscal year (net income was up, but at an unsustainable rate). Still, the stock carries trailing and forward P/Es of 14 and 12 respectively, and so the company does not need to generate much growth in order to justify the current valuation. It may be worth watching for further developments or researching further if an investor has an interest in the industry.

Hertz Global Holdings, Inc. (NYSE:HTZ), which rents construction and industrial equipment as well as cars, was another of the fund’s high upside potential picks as the filing disclosed a new position of 4.9 million shares. Hertz Global Holdings, Inc. (NYSE:HTZ)’s fortunes are closely tied to those of the broader economy, as shown by the stock’s beta of 2.8. Earnings are expected to increase considerably from their levels over the trailing four quarter period, resulting in a five-year PEG ratio of 0.5. Last quarter the company’s revenue came in 24% higher than its levels in the first quarter of 2012.

We think that Hertz Global Holdings, Inc. (NYSE:HTZ) is an interesting growth play, and would say the same for Whirlpool Corporation (NYSE:WHR) though of course we’d want to more closely check out each of these companies before buying. Delta Air Lines, Inc. (NYSE:DAL) also looks somewhat appealing, though in that case the low PEG ratio is likely less due to high growth prospects and more due to investors pricing in a number of downside risks. Citigroup Inc (NYSE:C) also looks like a potential value going by either book or earnings figures, although it is not too out of place compared to its peer banks.

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

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!