We track 13F filings from hedge funds and attempt to find ways to make the provided information useful despite the inherent lag (these filings disclose many of a hedge fund’s long equity positions at the end of a quarter, but are only made public six to seven weeks later). We have found that it is possible to develop investment strategies based on 13Fs; for example, the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (read more about our small cap strategy). We can also look at the top picks of well-known investors such as billionaire David Einhorn of Greenlight Capital in a number of areas, including the traditional value criteria of low price-to-earnings multiples (see Einhorn’s stock picks). Here are five of Greenlight’s largest holdings as of the end of December in stocks with both trailing and forward P/Es of 10 or lower:
Einhorn’s top pick as of the end of the fourth quarter was Apple Inc. (NASDAQ:AAPL), and he actually increased his holdings by 20% to a total of 1.3 million shares. Other hedge funds were less bullish on Apple Inc. (NASDAQ:AAPL), with enough selling out of the stock completely that it dropped to the #2 slot in our list of the most popular stocks among hedge funds (AIG is the new #1). Wall Street analysts remained loyal to the consumer technology, with their earnings forecasts implying a forward P/E multiple of 9 and a five-year PEG ratio of only 0.5. We certainly don’t expect Apple Inc. (NASDAQ:AAPL)’s growth to be that high but the stock is cheap enough that it only needs to maintain its current business.
At the Value Investing Congress in October, Einhorn named General Motors Company (NYSE:GM) as one of his two long picks, arguing that Europe will recover within the next several years, that the brand is strong in China, and that U.S. consumers’ cars are aging to historic levels. GM also made our list of hedge funds’ favorite stocks, and Warren Buffett’s Berkshire Hathaway reported owning 25 million shares in its own 13F (find Buffett’s favorite stocks). GM’s trailing P/E is 10, so once again required growth rates are low; we would compare it to other industry players including Ford Motor Company (NYSE:F).
Find three more cheap stock picks from David Einhorn: