In February, Coatue Management- a hedge fund managed by Philippe Laffont, a former employee of legendary investor Julian Robertson’s Tiger Management- filed its 13F for the fourth quarter of 2012, disclosing many of its equity positions as of the end of December. We have found that even with this delay it is possible to use 13Fs to develop investment strategies, given that the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year on average. We can also look at individual filings including Laffont’s, see what new positions a fund added to its portfolio, and treat those as a list of free recommendations for further research. Read on for our quick take on Coatue’s five largest new holdings from the 13F or see the full list of stocks it reported owning.
The fund initiated a position of 3.1 million shares in CBS Corporation (NYSE:CBS) between October and December of last year. CBS boasts a leading broadcast network as well as other television, publishing, and outdoor advertising assets. At a market capitalization of $29 billion, it trades at 19 times trailing earnings but the company is set to realize additional value from the outdoor business by converting the U.S. business to a real estate investment trust (which would receive favorable tax status under certain conditions, creating shareholder value) and selling its operations in other geographies.
Laffont and his team were also buying Netflix, Inc. (NASDAQ:NFLX), which is up51% in the last year in the latest from the stock’s roller coaster ride. Billionaire activist investor Carl Icahn has recently taken a large stake in Netflix, reporting a position of 5.5 million shares at the beginning of January (find Icahn’s favorite stocks). Adjusted earnings per share of 13 cents in Q4 2012 beat analyst expectations, though the stock’s forward P/E is 60. 16% of the outstanding shares are held short and we certainly are wary of the company’s high earnings multiples.
Charter Communications, Inc. (NASDAQ:CHTR), a $10 billion market cap TV, Internet, and phone company, was another of Coatue’s new picks. Charter has been another good returner in the last year, up 58%, though it too is something of a short target with short positions accounting for over 10% of the total shares outstanding. Revenue was up 4% last quarter compared to the fourth quarter of 2011, and the stock is quite defensive at a beta of 0.3, but we are skeptical of its valuation as well.
See two more of the fund’s new stock picks: