We track quarterly 13F filings from hundreds of hedge funds and other notable investors, including billionaire David Shaw’s large hedge fund D.E. Shaw. We use the information from 13Fs to help us in developing investment strategies; we have found, for example, 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). Our database also allows us to screen individual filings according to a number of criteria, including the PEG ratio (which incorporates both the P/E multiple and analyst expectations for future growth- though those aren’t always accurate, and so we prefer to think of the PEG as a metric for “upside potential”). Read on for our quick take on D.E. Shaw’s five largest holdings in stocks with five-year PEG ratios of 0.9 or lower (or see the full list of stocks the fund reported owning).
The investment team slightly increased its holdings of Apple Inc. (NASDAQ:AAPL) during the first quarter of 2013, to a total of 1.7 million shares. During Q1, Apple Inc. (NASDAQ:AAPL) regained its place as the most widely owned stock among the hedge funds we track after falling to the #2 spot in the previous quarter (check out the full top ten list). The stock currently trades at 10 times trailing earnings- and that’s at a valuation which includes Apple Inc. (NASDAQ:AAPL)’s large cash hoard. This suggests to us that the market is pricing in further declines in the company’s earnings, and so we think Apple Inc. (NASDAQ:AAPL) is worth watching for any signs of stabilizing.
D.E. Shaw reported a position of 3.8 million shares in Anadarko Petroleum Corporation (NYSE:APC), an integrated oil and gas company with a market capitalization of $44 billion. Earnings were down considerably last quarter compared to the first quarter of 2012, but the sell-side is expecting the company to recover. Forecasts for 2014 imply a forward P/E of 16, though we’d note that while an improvement on the trailing numbers this represents a premium to large oil and gas companies. Billionaire Ken Griffin’s Citadel Investment Group was another major shareholder in Anadarko (find Griffin’s favorite stocks).
Oil and gas refining and marketing company Marathon Petroleum Corp (NYSE:MPC) was another high upside potential pick; the filing disclosed ownership of 3.1 million shares, while the stock’s five-year PEG ratio comes out to 0.7. That amount of upside potential is a combination of decent growth expectations (in line with rising revenue and earnings over the last year) and the fact that both the trailing and forward P/Es are only 8. Viking Global initiated a position of 2.8 million shares between January and March; that fund is managed by billionaire and Tiger Cub Andreas Halvorsen (see Halvorsen’s stock picks).
The fund nearly quadrupled its holdings of Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) in the first quarter of this year, closing March with a stake of 5.6 million shares. The company is valued at 8 times forward earnings estimates; the stock price plunged after Freeport-McMoRan announced an acquisition of two oil and gas companies in December, and is currently down 16% in the last year. It’s possible the market may have overreacted to integration risk and the potential loss of focus on the core business. Billionaire John Paulson’s Paulson & Co. had 9 million shares in its own portfolio, per its filing.
According to the 13F, D.E. Shaw owned 1.3 million shares of Celgene Corporation (NASDAQ:CELG) at the beginning of April. The $50 billion market cap biotech company isn’t earning much right now compared to that valuation, and even the forward P/E is 17, but analysts expect high growth in earnings per share over the next several years and as a result the PEG ratio here is 0.9. Renaissance Technologies, whose founder Jim Simons has become a multi-billionaire on its success, more than doubled its own holdings of Celgene during Q1 (research more stocks Renaissance was buying).
Disclosure: I own no shares of any stocks mentioned in this article.