We track quarterly 13F filings from hundreds of hedge funds, including Philippe Jabre’s Jabre Capital Partners, as part of our work researching investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (learn more about our small cap strategy). We also like to track activity from individual funds so that investors can briefly review these managers’ top picks and identify stocks which look interesting. Read on for our thoughts on Jabre’s five largest stock positions as of the end of March or see the full list of the fund’s stock picks.
Jabre and his team bought 2.6 million shares of Dell Inc. (NASDAQ:DELL) in the first quarter of 2013. The buyout offer for Dell Inc. (NASDAQ:DELL) from the company’s founder Michael Dell and a consortium of private equity investors including Silver Lake Partners still appears to lead Carl Icahn’s own offer as a potential transaction. The terms of this deal are for $13.65 per share; as of this writing, the stock is trading between $13.40 and $13.45. Hedge funds often pursue merger arbitrage strategies due to their low correlation with broader market indices.
Another large bank in the fund’s portfolio was Citigroup Inc. (NYSE:C), with the filing disclosing ownership of a little over 500,000 shares of the stock. Citigroup Inc. (NYSE:C) is one of those peers of Wells Fargo which is valued at a discount to book- the P/B ratio is 0.8- and with a forward earnings multiple of only 9 it is arguably a value play no matter which of those two metrics we consider. The forward numbers do include analyst expectations of a significant increase in earnings per share, though its most recent quarterly report showed 30% earnings growth compared to Q1 2012.
The fund reported a position of 1.3 million shares in General Electric Company (NYSE:GE) in the filing. GE pays a dividend yield of 3.3% at current prices and dividend levels. However, we would be concerned about the stock’s valuation as it trades at 17 times trailing earnings but its revenue was down slightly in the first quarter of 2013 versus a year earlier. Net income was actually higher, but we’d expect that further improvements on the top line would not be sustainable as long as revenue performance continues to lag.
American International Group Inc (NYSE:AIG) was another of Jabre’s top stock picks. AIG had been the most popular stock among hedge funds in the fourth quarter of 2012, but slipped to the #3 slot earlier this year (check out the full top ten list). It’s another finance and insurance company trading below book value (its P/B is 0.7) even after good returns over the last year. The business has been shrinking as AIG sells off assets, and the sell-side predicts that this will lead to positive results for the company- the forward P/E is only 11.
We wouldn’t fully trust analyst expectations for Citigroup Inc. (NYSE:C) or AIG, but the two stocks are cheap enough that we’d consider them as well as Wells Fargo on value terms. The spread between Dell’s current price and any transaction price is fairly small, so a deal would have to take place quite soon in order to be a competitive investment opportunity without using too much leverage. As for GE, we would avoid it at least for now given the company’s struggles in terms of revenue.
Disclosure: I own no shares of any stocks mentioned in this article.
