In mid May, Capital Growth Management, a fund managed by Ken Heebner, filed its 13F with the SEC. These filings disclose many of a fund’s long equity positions as of the end of the previous quarter, and we’ve found that this information can be useful in developing investment strategies (for example, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). 13F filings can also be used as a source of initial investment ideas from top managers, with investors performing further research on stocks which seem to be good values. We have gone through Capital Growth Management’s most recent 13F and here are its five largest holdings as of the end of March (or compare these picks to the fund’s previous filings).
Heebner reduced his holdings of Citigroup Inc (NYSE:C) by 14% but the bank was still his largest holding by market value at 5.6 million shares. Citigroup Inc (NYSE:C)’s stock price has roughly doubled in the last year, though that has also been accompanied by a rise in book value; as a result, while its discount to book has shrunk we still see a P/B ratio of 0.8. With earnings up, and with analysts looking for that trend to continue, Citigroup Inc (NYSE:C) still has something of a value case going. According to our database of 13F filings, Citigroup Inc (NYSE:C) was the fourth most popular stock among hedge funds in the first quarter of 2013 (find more of hedge funds’ favorite stocks).
Another financial stock at the top of Heebner’s portfolio, with a position of nearly 11 million shares, was Morgan Stanley (NYSE:MS). Morgan Stanley (NYSE:MS) is more of a pure play investment bank, and highly exposed to the broader economy, with a beta of 2.3. While the business has been struggling recently, Wall Street analysts are forecasting $2.54 in earnings per share for 2014, making for a forward earnings multiple of 10; we’d note that there is a discount to book here as well. Billionaire Bruce Kovner’s Caxton Associates was buying Morgan Stanley (NYSE:MS) last quarter (see Caxton’s stock picks).