We track 13F filings from hedge funds, which report many of their long equity positions as of the end of the previous quarter, for a variety of purposes. One way we use this information is by developing investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds earn an excess return of 18 percentage points per year on average (read more about our small cap strategy). We also like to think of 13Fs as a list of recommendations from top managers, and so we can look at which stocks they like in a number of categories. Here are our thoughts on five of the largest consumer stock holdings which billionaire Steve Cohen’s SAC Capital Advisors owned at the end of December:
The fund increased its holdings of News Corp (NASDAQ:NWSA) to a total of 9.6 million shares, making the media company one of its top stock picks. News Corp is planning to break its business into two this year; a number of investors believe that this will allow management of the new companies to improve operations as the situation is similar to that of a spinout (learn more about the advantages of spinouts). The stock has risen 52% in the last year, partly on the general strength of media but also on these prospects. News Corp currently trades at 15 times consensus earnings for the fiscal year ending June 2014.
SAC also had Starbucks Corporation (NASDAQ:SBUX) as one of its ten largest holdings by market value after more than doubling its stake between October and December. Starbucks occupied the #2 slot in our list of the most popular restaurant stocks among hedge funds for the fourth quarter of 2012, just behind McDonald’s Corporation (NYSE:MCD). Find more restaurant stocks hedge funds love. While revenue and earnings both grew at double-digit rates in the fourth quarter of 2012 versus a year earlier, the stock is priced for high growth at a trailing P/E of 32. As a result we would avoid the stock at this time.
Read on for three more of Cohen’s consumer picks:
Accessories designer and retailer Fossil Inc (NASDAQ:FOSL) was another of Cohen’s consumer picks with the 13F disclosing a position of 1.6 million shares. At a market capitalization of $6.3 billion, Fossil carries trailing and forward P/Es of 19 and 15 respectively. While the stock price is down 20% in the last year against a rising market, the company has actually turned in a good financial performance and seems worthy of further investigation. Ricky Sandler’s Eminence Capital added shares of Fossil between October and December and closed 2012 with about 950,000 shares in its portfolio (research more stocks Sandler was buying).
Cohen and his team reported a position of 2.5 million shares in $3.1 billion market cap auto parts company Visteon Corp (NYSE:VC), which provides climate and electronics components. Since demand is tied to the auto market the stock price is highly sensitive to changes in broader market indices, giving it a beta of 2.3. While the trailing earnings multiple is a bit high, the sell-side expects an improved bottom line over the next couple years leading to a forward P/E of 12. JANA Partners, managed by Barry Rosenstein, had 1.9 million shares at the end of the fourth quarter according to its own 13F (check out Rosenstein’s stock picks).
SAC owned 2.6 million shares of Nike, Inc. (NYSE:NKE) at the beginning of January after moving heavily into the stock over the previous three months. Nike is another growth stock, as it trades at 25 times trailing earnings. Its most recent quarterly report- for the fiscal quarter ending in November 2012- showed an 18% decline in earnings compared to the same period in the previous fiscal year though sales were up 7%. Billionaire Ken Griffin’s Citadel Investment Group increased its stake in Nike to 2.1 million shares (see more stocks Griffin liked). We think that the valuation may be a bit high here as well.
Disclosure: I own no shares of any stocks mentioned in this article.