Farallon Capital Management is one of the largest hedge funds in the world, and the combination of size, good returns, and a long operating history- the fund was founded in 1986- has helped make founder and manager Thomas Steyer a billionaire. In November, Farallon filed its 13F with the SEC and therefore reported a number of its long equity positions as of the end of the third quarter (see the list of Farallon's stock picks). Here are the five services stocks that Steyer’s fund had the largest positions by market value in at that time:
Visa Inc (NYSE:V) was the largest of Farallon’s services stock picks. The credit card company has been reporting strong growth in both revenue and earnings, and its market performance has been good as well: the stock is up over 50% from its levels a year ago. Visa trades at 21 times expected earnings for the current fiscal year (ending in September 2013) with analysts seeing strong growth this year and next. Visa led our list of the ten services stocks hedge funds love (see the full rankings), though our impression is that credit card companies like American Express and Discover are cheaper enough to be worth considering.
Farallon increased its holdings of Priceline.com Inc (NASDAQ:PCLN) by 82% to a total of about 250,000 shares. Priceline is in the process of purchasing Kayak, which will further establish the company as the market leader in online travel services. It has also been growing well, despite its size: last quarter revenue increased 17% and earnings were up 27% compared to the same period in 2011. Billionaire Stephen Mandel’s Lone Pine Capital reported owning 1.4 million shares of Priceline at the end of September, making it the largest position by market value in the fund’s 13F portfolio (check out Mandel's stock picks). The forward P/E is 17 and even if Priceline slightly misses that mark it could still be characterized as “growth at a reasonable price.”