We track 13F filings from hedge funds and other notable investors for a variety of purposes. According to our research thus far, 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) and we are working on finding other strategies as well. Many investors use 13Fs as a list of recommendations from top investors and by screening their picks with traditional value criteria we can generate potential ideas for investors to research further if they think that the company sounds interesting. Here are our brief thoughts on the five largest holdings by market value that billionaire Stanley Druckenmiller reported owning with both trailing and forward P/Es of 14 or lower (or see the full list of stocks from the 13F):
Druckenmiller reported a position of 3.4 million shares in Pfizer Inc. (NYSE:PFE) at the end of the fourth quarter of 2012. Pfizer topped our list of the most popular healthcare stocks among hedge funds for the fourth quarter (find more healthcare stocks hedge funds loved) with 77 filers in our database of hedge funds and other notable investors owning it. The dividend yield is decent here, at 3.4% going by recent dividend payments and the current price, and in terms of value Pfizer is at least somewhat attractive at a trailing earnings multiple of 14. The beta of 0.7 is low, though higher than can be found at some other healthcare companies.
Read on for three more of Druckenmiller’s stock picks:
Brazilian bank Itau Unibanco Holding SA (NYSE:ITUB) was another of Druckenmiller’s stock picks with the filing disclosing ownership of 1.6 million shares. At a market capitalization of $81 billion, Itau Unibanco trades at 12 times trailing earnings and 9 times analyst consensus for 2014. The stock price has fallen 16% in the last year, about in line with exchange-traded funds which track the Brazilian market. Some commodities have fallen in price in the last year, and combined with an increased perception of political risk it’s no surprise that Brazil and Itau Unibanco have been affected. Large hedge fund Arrowstreet Capital was another major holder of the stock.
Druckenmiller cut his stake in SunTrust Banks, Inc. (NYSE:STI) in half but this still left him with about 900,000 shares at the beginning of January. The bank is cheap in both book and earnings terms: it carries a substantial discount to the book value of its equity at a P/B ratio of 0.8 while the forward P/E is 10. This makes it somewhat competitive with larger banks on a value basis. Billionaire George Soros had 1.5 million shares in his portfolio at the end of the fourth quarter, though he had been reducing his position as well (research Soros’s favorite stocks).
Delta Air Lines, Inc. (NYSE:DAL) rounded out our list of Druckenmiller’s top five cheap picks; it was another stock that the billionaire had only started buying since the end of September. Capital Growth Management, managed by Ken Heebner, also initiated a position in Delta last quarter (see more stocks Heebner was buying). Delta stands to benefit from industry consolidation without having to concern itself with integration risk, and it trades at only 13 times trailing earnings. As a result it may not have as much upside as US Airways but should in turn have less of a downside as well.
Disclosure: I own no shares of any stocks mentioned in this article.
