Billionaire David Shaw’s Small Cap Picks Include AOL, Inc. (AOL)

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D.E. Shaw reduced its holdings of AOL, Inc. (NYSE:AOL) between January and March, closing the quarter with possession of 2.3 million shares. At 19 times forward earnings estimates, the market is expressing optimism about AOL, Inc. (NYSE:AOL) – which is now primarily a content portal (it owns the Huffington Post, for example) in addition to its dial-up Internet subscription service. A number of market players are skeptical, however, with 10% of the float held short. Renaissance Technologies, whose founder Jim Simons is now a multi-billionaire, increased its holdings of AOL, Inc. (NYSE:AOL) to a total of 1.6 million shares (find Renaissance’s favorite stocks).

According to the 13F, Shaw and his team were buying WABCO Holdings (NYSE:WBC) during Q1and owned 1.1 million shares at the beginning of April. WABCO Holdings (NYSE:WBC) is an auto parts company with a focus on braking, suspension, and transmission components. The business experienced declines in both revenue and net income last quarter compared to the first quarter of 2012, but the sell-side expects that to reverse (analysts are generally bullish on auto related companies) and the five-year PEG ratio is only 0.8. Warren Buffett’s Berkshire Hathaway is a fan of WABCO Holdings (NYSE:WBC), with the holding company reporting a position of 4.1 million shares (research more stocks Buffett owns).

Rounding out our list of D.E. Shaw’s small cap picks is meat producer Hillshire Brands Co (NYSE:HSH). Food companies are generally carrying high multiples in the current market- Berkshire recently bought H.J. Heinz Company (NYSE:HNZ) while one of Hillshire Brands Co (NYSE:HSH)’s closest peers, Smithfield Farms (NYSE:SFD) is on track to be acquired by a Chinese pork producer. Hillshire’s forward P/E is 20, in line with the food industry in general. Paulson & Co., managed by billionaire John Paulson, was selling Hillshire during the first quarter of this year but still had 3 million shares in its portfolio at the end of March (see more trades Paulson has been making).

Disclosure: I own no shares of any stocks mentioned in this article.

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