Most investors are currently wondering how much lower the stock market can go and how much uglier things can get. Those hedge fund managers and other investors who were anticipating another stock market correction after enduring the turbulent third quarter will most probably benefit the most from the fast-declining valuations of U.S companies. Valuations are becoming more attractive day after day and those who had hedged enough before the recent downfall will benefit the most from the abundant pool of opportunities. Leaving the discussion about volatility and concerns aside for a moment, let’s discuss several filings submitted with the SEC by two widely-known money managers. Specifically, a filing submitted by Warren Buffett and two separate 13Gs filed by Glenn J. Krevlin will be closely examined and discussed in this article.
Imitating hedge funds and other institutional investors can help identify some of the most profitable stocks on the market. However, our extensive research that covered the period between 1999 and 2012, showed that the best approach is to follow these investors into their small-cap stocks. Our backtests showed that the 15 most popular small-cap stocks among hedge funds managed to generate a monthly alpha of 81 basis points, versus an alpha of 0.7 percentage points posted by their top 50 large-cap picks (see more details here).
As already stated in our previous articles, Berkshire Hathaway just keeps buying shares of Phillips 66 (NYSE:PSX) with each passing day. According to a Form 4 filing, billionaire Warren Buffett purchased 861,470 shares on Tuesday at prices that ranged from $76.00 to $78.38 per share, boosting his overall holding to nearly 67.45 million shares. As covered in several articles earlier this week, Berkshire Hathaway bought 1.65 million shares last Thursday, 1.74 million shares last Friday, and 902,442 shares on Monday. The shares of the oil refiner have plummeted by 16% since early December, but they are up by 21% over the past year. The recent slump in Phillips 66 (NYSE:PSX)’s share price has created an attractive entry point for Buffett and other investors. Refining margins have been increasing over the past several months, as the average market crude oil price declined by more than the average market gasoline price. The increased refining margins have a positive effect on Phillips 66’s bottom-line results, but analysts anticipate falling demand for the company’s output, which could put downward pressure on both its top- and bottom-line figures. Nonetheless, the stock trades at a forward price-to-earnings ratio of only 10.82, which compares well with the 15.75 ratio for the S&P 500 benchmark. Aside from Buffett, D.E. Shaw & Co. L.P., founded by David E. Shaw, also holds a sizable stake in Phillips 66 (NYSE:PSX), owning 9.94 million shares as of September 30.
Follow Warren Buffett's Berkshire Hathaway
Let’s head to the next page of this article, where we reveal two freshly-made moves reported by Glenhill Advisors.