We have spent the last couple weeks studying 13F filings from hedge funds and other notable investors. 13Fs disclose many long equity positions in U.S. stocks at the end of a quarter, the fourth quarter of 2012 in this case. Our database of filings allows us to research trends that allow investors to make use of the information in 13Fs; for example, we have discovered that even with the inherent lag the most popular small cap stocks among hedge funds produce an average excess return of 18 percentage points per year (read more about small cap stock picks). We can also compare the most recent 13F to the one from three months earlier to spot new holdings in top investors’ portfolios.
Billionaire Julian Robertson no longer manages client funds, but between his success as the head of Tiger Management and his mentorship of a number of “Tiger Cubs” who have gone on to become hedge fund managers themselves his legacy as a legend in the investment world is sealed. Here are the five largest new positions in Robertson’s 13F for the fourth quarter of 2012 (see more of Robertson’s stock picks):
Robertson’s largest holding by market value was a new one: about 520,000 shares of ADT Corp (NYSE:ADT). ADT was recently spun out from Tyco International to focus on electronic security products and solutions for residential and business customers. Many investors like spinouts because management can better run the business without having to concern themselves with the needs of the parent company. This excitement has bid up ADT Corp (NYSE:ADT)’s price such that its earnings multiples- even on a forward basis, for the fiscal year ending in September 2014- are in the 20s.
Robertson was also buying shares of Berkshire Hathaway Inc. (NYSE:BRK.B), and Warren Buffett’s holding company was another of his ten largest holdings despite not having owned any shares of Berkshire at the end of September. Many value investors buy Berkshire Hathaway, acknowledging that Buffett’s skills as a money manager are good enough for their own money. Find Buffett’s favorite stocks. The holding company’s price-to-book ratio is 1.4, showing that the market values Berkshire Hathaway Inc. (NYSE:BRK.B) at considerably more than the book value of its equity.
The 13F disclosed a position of 330,000 shares in Capital One Financial Corp. (NYSE:COF). The bank and credit card company certainly looks cheap at 8 times trailing earnings, with business expected to be more or less steady over the next couple years. That is a steep discount to where other credit card stocks are trading, including market leaders Visa and Mastercard. We would expect those brand names to have higher earnings multiples than Capital One but the gap looks large enough that we like Capital One Financial Corp. (NYSE:COF)’s prospects as a value stock.
Ryman Hospitality Properties, Inc. (NYSE:RHP) was another of Robertson’s new stock picks. The $2 billion market cap company operates Gaylord branded resorts and convention centers as well as many Nashville-area tourist attractions. Ryman Hospitality Properties, Inc. (NYSE:RHP)’s revenue was down slightly last quarter compared to the fourth quarter of 2011, and earnings have been negative the last couple quarters; the most recent data shows that 42% of the outstanding shares are held short, representing a sizable bearish community. While it’s interesting to see the billionaire buying here, we still think that we would avoid the stock.
Robertson reported buying a little less than 300,000 shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX). The pharmaceutical company’s stock price is up 30% in the last year, outperforming the market. While revenue growth was strong in its most recent quarterly report compared to the same period in the previous year, net income was down and so we would prefer to be cautious in looking into the company. Valeant Pharmaceuticals Intl Inc’s current market capitalization is about $20 billion.
Disclosure: I own no shares of any stocks mentioned in this article.