Several weeks after the end of each fiscal quarter, hedge funds file 13Fs with the SEC to disclose many of their long equity positions from the end of that quarter. While this information is a bit old by the time it is released, we’ve actually found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about imitating small cap picks). We also like to use filings from well-known fund managers as sources of initial investment ideas, which can then be researched further if they reveal any interesting names. We have gone through the most recent 13F from Tiger Cub Philippe Laffont’s Coatue Management and here are our brief thoughts on the fund’s five largest holdings as of the end of March (or see the full list of Laffont’s stock picks).
Coatue slightly increased the size of its position in Equinix Inc (NASDAQ:EQIX) to a total of 4.4 million shares. Equinix Inc (NASDAQ:EQIX), a $10 billion market cap data center services company, carries a premium valuation in the market at over 40 times forward earnings estimates. While recent results on the top line have been strong- revenue rose 17% last quarter compared to the first quarter of 2012- earnings were up only slightly and so we’d be concerned about the valuation. The most recent data shows 18% of the float held short.
The fund reported owning nearly 12 million shares of Time Warner Inc (NYSE:TWX). Large-cap media and entertainment stocks are currently trading at trailing earnings multiples in the high teens, and Time Warner Inc (NYSE:TWX) is no exception with a P/E of 18. Net income grew 24% in its most recent quarter compared to the same period in the previous year, though revenue was about flat over the same time frame. We’d be interested in comparing the company to its peers such as Disney and News Corp, which are priced in a similar valuation range.
Laffont and his team moved heavily into CBS Corporation (NYSE:CBS). CBS Corporation (NYSE:CBS) is priced in the same range as the other media stocks we’ve discussed, with a trailing earnings multiple of 19, and there’s some upside potential if the company can successfully spin out its outdoor advertising (i.e. billboard) unit as a real estate investment trust. In addition to the general benefits of spinouts, REITs are more tax efficient potentially allowing significant creation of shareholder value. However, we’d note that the IRS has recently formed a working group to potentially develop a stricter definition of real estate.