We track quarterly 13F filings from hundreds of hedge funds, including billionaire Ken Griffin’s Citadel Investment Group (see Griffin’s stock picks). Even with the inherent delay in 13Fs (the most recent batch reports long equity positions as of the end of March), we think that there are still a couple ways to make use of the information. We’ve found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year, and think that more strategies are possible as well. The most recent filing can also be compared to the previous one to see what top managers were buying last quarter; we don’t recommend blindly following these picks, but they can be sources of potential ideas for further analysis. It turns out that Citadel more than doubled its holdings of Visa Inc (NYSE:V) between January and March, to a total of 1.4 million shares.
Visa Inc (NYSE:V)’s operating revenues grew by 15% in its most recent quarter (its fiscal Q2 ended in March of 2013) compared to the same period in the previous fiscal year, and despite rises in costs the company’s pretax income grew at the same pace. Earnings fell over the same time frame, but this was entirely due to a higher effective tax rate. Adjusted earnings per share are expected to rise considerably during the current fiscal year, to $7.48 (up from $6.20, which would represent a 21% increase); we’d note that significant buybacks took place in the first half of Visa’s fiscal year, potentially boosting EPS.
The $7.48 figure gives a current-year earnings multiple of 24. Analysts continue to be optimistic about Visa’s prospects beyond that point, but the forward P/E is still 21. This indicates that the market expects high EPS growth to continue over the long term. We certainly like what the company has been doing recently, but this suggests that it would take the company a long growth period to prove undervalued at this price and so we’d be cautious here. Billionaire and Tiger Cub Andreas Halvorsen’s Viking Global reported a position of 2.6 million shares in Visa at the end of the first quarter of this year (find Halvorsen’s favorite stocks).