Several weeks after the end of each quarter, hedge funds and other notable investors including billionaire George Soros file 13Fs with the SEC, disclosing many of their long equity positions as of the end of the previous quarter (with the most recent filing referring to portfolios as of the end of March). Even though this information is a bit old, there are still a few ways for investors to make us of it. We’ve found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year, and think that more strategies are possible as well. We can also screen top managers’ picks according to a number of criteria, including low earnings multiples, in search of any interesting investment ideas which might be worthy of further research. We have gone through Soros’s filing and here are his five largest holdings in stocks with both trailing and forward P/Es of 14 or lower (or see the full filing on our website).
The billionaire’s top pick in this category was US Airways Group, Inc. (NYSE:LCC), with 7.8 million shares in his portfolio at the beginning of April. US Airways Group, Inc. (NYSE:LCC) is buying American Airlines out of bankruptcy, and many analysts believe that this consolidation could stimulate higher prices in the airline industry. The stock trades at only 6 times forward earnings estimates, however, as investors worry about the general unattractiveness of airlines as well as integration risk. We’d note that many other airlines also carry low multiples and as such might be more attractive value plays.
Soros and his team nearly tripled their holdings of fertilizer company Mosaic Co (NYSE:MOS) to a total of 1.6 million shares. Mosaic Co (NYSE:MOS) trades at 13 times trailing earnings; similarly to airlines, fertilizer and other agriculture related companies tend to be cheap in the current market environment. The company’s net income grew by 26% in its most recent quarterly report (for the fiscal quarter ending in February) compared to the same period in the previous fiscal year. However, revenue numbers were up only slightly so earnings growth at that level is probably not sustainable.
Macy’s, Inc. (NYSE:M) was another of Soros’s cheap picks: the filing disclosed ownership of 1.1 million shares, while the department store carries trailing and forward P/Es of 14 and 11 respectively. With Wall Street analysts expecting further improvements on the bottom line over the next several years, the five-year PEG ratio is 0.9. As with Mosaic, while Macy’s, Inc. (NYSE:M) has been delivering good earnings growth this has primarily come from wider margins; still, the stock is cheap enough and recent performance has been strong enough that we’d be interested in learning more about the company.