Billionaire Louis Bacon’s Cheap Stock Picks Include JPMorgan Chase

We track 13F filings from hedge funds and other notable investors for a number of reasons. For one, we work on researching investment strategies based on the included information: even with the inherent delay that comes from using 13F filings, the most popular small cap stocks among hedge funds generate an excess return of 18 percentage points per year on average (read more about imitating hedge funds’ small cap picks) and we think other strategies are possible as well. A second way to use 13Fs is similarly to a stock screen: simply pull a top investor’s 13F and see which stocks are their top picks. We can also combine ownership with quantitative metrics including P/E multiples to narrow a list of recommendations for future research further. Here are five stocks which billionaire Louis Bacon’s Moore Global (see Bacon’s stock picks) owned at the end of December and which have both trailing and forward P/Es less than 12:

The fund’s top pick in this valuation category was JPMorgan Chase & Co. (NYSE:JPM) with a position of 5.1 million shares. JPMorgan Chase was one of the most popular financial stocks among hedge funds in the fourth quarter of 2012 (find more financial stocks hedge funds loved). It does look like a good value in earnings terms, with a trailing P/E of 10; in addition, the stock is priced almost exactly at the book value of its equity. JPMorgan Chase’s business has also been doing quite well, with revenue up 19% and earnings up 53% in its most recent quarter compared to the same period in the previous year.

Another big bank Moore liked was Wells Fargo & Co (NYSE:WFC). Wells Fargo is, of course, Warren Buffett’s favorite financial stock with Berkshire Hathaway owning $15 billion worth of the stock at the end of December (check out Buffett’s favorite stocks). In earnings terms, the bank is priced at a small premium to JPMorgan Chase with (for example) a trailing earnings multiple of 11. This is due to a better return on assets, since Wells Fargo’s P/B ratio is well above parity at 1.3. With its safer reputation and better income-statement performance it might be worth this book premium to other banks.

Here are three more stocks the fund owned: