Several weeks after the end of each quarter, hedge funds and other notable investors including billionaire Ken Fisher’s mutual fund Fisher Asset Management file 13Fs with the SEC to disclose many of their long equity positions as of the end of the quarter. We compile these filings and use them to help us develop investment strategies; for example, we have found 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 own portfolio based on these techniques outperformed the market by 33 percentage points in the last 11 months.
Fisher has already filed its 13F for the end of June, and so we have been going through the filing looking for potential value plays among the firm’s top picks. Read on for our quick take on its five largest positions as of the end of June in stocks with both trailing and forward P/E multiples of 13 or lower, or see a history of the fund’s stock picks.
One of Fisher’s largest positions this year has been large pharmaceutical company Pfizer Inc. (NYSE:PFE), and it owned almost 31 million shares at the end of the second quarter of 2013. Pfizer Inc. (NYSE:PFE) has been selling or spinning out a number of its assets, including its former animal health unit Zoetis Inc (NYSE:ZTS), which in theory will enable management to focus more on the core business. Forecasts from Wall Street analysts imply a forward earnings multiple of 13. D.E. Shaw, a hedge fund managed by billionaire David Shaw, had 6.8 million shares of Pfizer Inc. (NYSE:PFE) in its portfolio as of the end of March (research more stocks D.E. Shaw owned).
The investment team reported a position of a bit more than 18 million shares in Wells Fargo & Co (NYSE:WFC), which recently became Warren Buffett’s Berkshire Hathaway’s largest publicly traded holding by market value (find Buffett’ favorite stocks). The bank is valued at 1.6 times the book value of its equity, while peers generally trade at book or below, but Wells Fargo & Co (NYSE:WFC) has been able to generate significant earnings from these assets. As a result its trailing P/E is only 12- a premium to some of its peers, but still fairly low in absolute terms. With earnings rising it could be worth considering as a value stock.
One of Wells Fargo & Co (NYSE:WFC)’s peers, JPMorgan Chase & Co. (NYSE:JPM) was another of Fisher’s cheap stock picks. Market sentiment is poorer on JPMorgan Chase & Co. (NYSE:JPM) than on Wells Fargo, possibly because of recent legal concerns related to the company’s business practices being challenged by regulators. The trailing P/E is only 9, despite the fact that (as with megabanks generally) earnings increased at a high rate last quarter compared to the second quarter of 2012- over 30% in this case. JPMorgan Chase & Co. (NYSE:JPM) had been one of the most popular stocks among hedge funds during Q1 (check out the full top ten list).
Fisher disclosed ownership of about 17 million shares of Microsoft Corporation (NASDAQ:MSFT) in the filing. While the earnings multiples are low here- trailing and forward P/Es of 12 and 10 respectively- investors should be aware that recent and near-future earnings numbers may be seeing a temporary bump to the release of new versions of Windows and Office. This factor should be accounted for when modeling out earnings further into the future. Microsoft Corporation (NASDAQ:MSFT) pays a dividend yield of nearly 3% at current prices. Jeffrey Ubben’s ValueAct Capital initiated a large position in the first quarter of the year and may push for changes at the company.
Rounding out our list of Fisher’s low P/E stock picks is Intel Corporation (NASDAQ:INTC). Intel Corporation (NASDAQ:INTC) is also a cheap pick in terms of valuation metrics, with a trailing earnings multiple of 12, but so far the company has not handled the shift in consumer preferences away from PCs well. Revenue fell 5% last quarter compared to the second quarter of 2012, contributing to a 29% decline in net income. It is a high yield stock, with a dividend yield of 3.9%, but we would be concerned about future financial performance. Renaissance Technologies, founded by billionaire Jim Simons, reported owning about 17 million shares at the beginning of April (see more stocks Renaissance liked).
With that in mind, here are a couple stories that may get your mind off of the markets:
Disclosure: I own no shares of any stocks mentioned in this article.