Six to seven weeks after the end of each quarter, hedge funds are required to file 13Fs with the SEC detailing many of their long equity positions as of the end of the quarter. While this information is a bit old by the time it is made public, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy). Another way to use the information found in 13Fs is to review the top picks of various hedge fund managers, including their favorite stocks in different industries or sectors, and then do more research on any stocks which seem like particularly good values. Here are five of the top services stock picks from billionaire and Tiger Cub Andreas Halvorsen’s Viking Global (or see the full list of stocks Viking reported owning):
Halvorsen’s top pick was Time Warner Inc (NYSE:TWX), the media and entertainment company whose brands include CNN, HBO, and Warner Brothers. Time Warner’s stock is up over 50% in the last year, and in fact in the fourth quarter of 2012 net income increased at a similar rate versus a year earlier. At a trailing P/E of 19, the company will need more earnings growth though it is planning to spin out its magazine business. Many hedge funds like to invest in spinout situations because management of the new companies becomes better able to focus on operations, often increasing shareholder value (read more about investing in spinouts).
Viking Global also increased its stake in News Corp (NASDAQ:NWSA), which is already well along in its own breakup process. Given the similarities to a spinout situation, a number of investors have been piling in making News Corp was the most popular consumer services stock among hedge funds in the fourth quarter of 2012 (find more consumer services stocks hedge funds loved). Currently News Corp is valued at 18 times its trailing earnings, which means that even with the excitement over the breakup little improvement would be required for the stock to be undervalued at its current price.
See three more of Halvorsen’s services picks: