We track quarterly 13F filings from hundreds of hedge funds, including billionaire Kerr Neilson’s Platinum Asset Management. We use the information in 13Fs to help us develop investing strategies; for example, we have 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 (learn more about our small cap strategy). Our explanation for this finding is that small cap stocks are more likely to be mispriced as they receive less attention from large institutional investors and the financial media. As such investors may be more likely to find undervalued (or overvalued) stocks here than in larger caps, and so we like to go through individual 13Fs in search of initial investment ideas for further research. Read on for our thoughts on Platinum’s five largest small cap holdings as of the end of March or see the full list of stocks the fund reported owning.
Neilson had over 5 million shares of SINA Corp (NASDAQ:SINA), the $3.7 billion market cap Chinese Internet portal (as well as owner of the Weibo blogging platform), in its portfolio at the end of Q1. Profits have been low on a trailing basis compared to where the company currently trades. Revenue has been doing well, rising 19% in the first quarter of 2013 versus a year earlier, but markets are already pricing in high earnings growth. While analysts appear extremely bullish on growth over the next several years, we think that we would avoid SINA Corp (NASDAQ:SINA) at these levels for now.
Platinum increased its holdings of engineering and construction company Foster Wheeler AG (NASDAQ:FWLT) to a total of nearly 10 million shares. Foster Wheeler AG (NASDAQ:FWLT), which focuses on energy related facilities and infrastructure, has been quite acquisitive lately with recent purchases of Ingen and of NorthAm Engineering. At a beta of 2.1, the business is quite dependent on broader economic activity. While recent financial performance has been poor, analysts expect a rebound and the forward P/E comes in at 11. Citadel Investment Group, managed by billionaire Ken Griffin, reported a position of 4.3 million shares in its own 13F (find Griffin’s favorite stocks).