Billionaire Bruce Kovner’s Cheap Stock Picks Include General Motors

Six to seven weeks after the end of each quarter, hedge funds file 13Fs with the SEC; these filings disclose many of their long equity positions as of the end of the last quarter. One way to use this information is to compile many funds’ portfolios and use the data to develop investment strategies; for example, we have found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (read more about our research on small cap picks). It’s also common for investors to use picks from top investors similarly to a stock screen, identifying names which can then be researched further, and we can combine ownership by a hedge fund with traditional value criteria. Here are billionaire Kovner’s Caxton Associates’ five largest holdings which carry both trailing and forward price-to-earnings multiples less than 12 (or see more of Kovner’s stock picks):

One of Kovner’s top picks was General Motors Company (NYSE:GM), with the filing reporting a position of 2.5 million shares. This is more than double what his fund had owned at the end of September. GM made our list of the most popular stocks among hedge funds for the fourth quarter of 2012 (find more stocks hedge funds love), with many value investors arguing that U.S. consumers will have to replace their aging cars soon and that the auto industry will be able to capitalize on that demand. GM currently trades at 9 times trailing earnings, and its revenues ticked up slightly last quarter compared to the fourth quarter of 2011.

CAXTON ASSOCIATES LPCaxton cut its stake in Wells Fargo & Co (NYSE:WFC) by over 30% but at 1.6 million shares the bank was still one of the fund’s five largest single-stock holdings by market value. Because Wells Fargo has a reputation as a safer bank than many of its peers, it trades at a premium to the book value of its equity with a P/B ratio of 1.3. However, by the criteria we’ve listed it actually does qualify as a value stock: Wells Fargo monetizes its assets so well that its trailing earnings multiple of 11 is well in line with many other large banks. In addition, revenue and net income have been up nicely and we think it’s worth considering.

Here’s another big bank that Kovner liked: