We track 13F filings from hedge funds and other notable investors both to help us develop investment strategies (the most popular small cap stocks among hedge funds, which can be determined by pooling these filings, tend to outperform the S&P 500 by 18 percentage points per year) and simply as a source of stock picks for further analysis (learn more about our small cap strategy). 13Fs are filed six to seven weeks after the end of a quarter and disclose many of an investor’s long equity positions as of the end of that quarter.
Billionaire Stanley Druckenmiller managed Duquesne Capital quite successfully for many years as well as served as a portfolio manager for George Soros. He now manages a family office under the Duquesne name; he is, therefore, still required to file 13Fs. We analyzed his filing for December 2012 and compared it to previous filings, and here are some investment themes we noticed:
Selling oil majors: In the third quarter of 2012 Druckenmiller added Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) to his portfolio; in the subsequent three months he sold all his shares of these companies. These two oil majors are valued at 9 to 11 times consensus earnings for 2014, as the industry in general is trading at value multiples. Seeing as Druckenmiller dumped both stocks completely, as well as the fact that they, in addition to peer BP plc (ADR) (NYSE:BP), would seem to be undervalued in the event of stable energy prices, we would assume that he is bearish on oil and gas. An expectation of lower oil prices in turn might be based on a bearish attitude towards the global economy, though of course there could be other causes. Exxon Mobil and BP had been among the most popular energy stocks among hedge funds in the third quarter (find more energy stocks hedge funds loved).
Out of favor stocks: American International Group, Inc. (NYSE:AIG), while one of the most popular stocks among hedge funds in the third quarter of 2012, is still looked on with disfavor by many market players and currently trades at a P/B ratio of 0.6. Airlines, including US Airways Group, Inc. (NYSE:LCC) , are generally thought of as terrible investments. Druckenmiller hadn’t owned shares of either company at the beginning of October, but by the end of 2012 both stocks were among his ten largest holdings by market value. AIG is up 42% in the last year, even though its valuation remains low in book or earnings terms (the forward P/E is 11). US Airways and the in-bankruptcy American Airlines have agreed to a merger (as had been speculated for months) though the transaction still must be reviewed by the federal Government. As it stands, US Airways trades at 5 times forward earnings estimates though of course adding American’s operations may be challenging for the bottom line at least in the short term.
Google Inc (NASDAQ:GOOG): The most recent 13F shows a near doubling of Druckenmiller’s stake in Google Inc (NASDAQ:GOOG) to about 140,000 shares. Last quarter Google’s earnings were up 7% versus a year earlier despite the acquisition of Motorola Mobility Holdings, which was not particularly positive for the bottom line in the short term. As Google continues to integrate the company, and as search growth continues to be strong, many investors have found it appealing. Wall Street analyst estimates imply a forward P/E of 15. Billionaire Stephen Mandel’s Lone Pine Capital owned over 1 million shares of Google at the end of September.
Selling oil majors is certainly the right move if Druckenmiller thinks oil prices are on their way down, though we like their prices in the current market. We think AIG and airlines are good value plays, though we might prefer one of US Airways’ competitors; peers would benefit from industry consolidation without the risks of integrating American. In the case of Google, we think investors are better served by waiting for more results from the company.
The article Billionaire Stanley Druckenmiller’s Latest Stock Picks originally appeared on Fool.com and is written by Jake Mann.
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