Insider Monkey maintains a database of quarterly 13F filings from hundreds of hedge funds as well as other notable investors including Warren Buffett’s Berkshire Hathaway (find Buffett’s favorite stocks). One use of these filings is in developing investment strategies, and we have actually found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and our own portfolio based on this finding outperformed the S&P 500 by 33 percentage points in the last 11 months. We can also use our database to see which stocks specific managers or combinations of specific managers owned recently. Read on for our thoughts on five stocks which both Berkshire and billionaire Stephen Mandel’s Lone Pine Capital (see Mandel’s stock picks) had in their portfolios at the end of the first quarter of 2013.
One stock Buffett has been buying so far this year is DaVita HealthCare Partners Inc (NYSE:DVA), and his holding company owned about 15 million shares of the kidney dialysis center operator at the end of March. DaVita HealthCare Partners Inc (NYSE:DVA) grew its patient related revenue by 12% last quarter compared to the second quarter of 2012 if we exclude the effects of its recent acquisition of HealthCare Partners. Analyst expectations for 2014 imply a forward earnings multiple of 14, so the market is not pricing in much growth beyond that point. D.E. Shaw, managed by billionaire David Shaw, reported a position of 1.8 million shares in its own 13F (check out more stocks D.E. Shaw owns).
Between January and March Berkshire more than doubled its stake in Internet registry services company Verisign, Inc. (NASDAQ:VRSN), a long time Lone Pine favorite. The stock plunged last fall on news that it would have trouble increasing its prices in the future to the degree it had wanted (price increases must be approved by regulators) but it is certainly is the kind of “moat” stock Buffett is known to like. Still, it is quite pricy at a valuation of 19 times forward earnings estimates. Value investor Barry Rosenstein’s JANA Partners is another significant shareholder in Verisign, Inc. (NASDAQ:VRSN) (research more stocks JANA likes).
WABCO Holdings Inc. (NYSE:WBC), a $4.9 billion market cap auto parts company focusing on braking and suspension systems, was another top pick from both Buffett and Mandel. Wall Street analysts believe that the company’s earnings will grow considerably over the next several years, and so while the trailing P/E is 17 this valuation comes out to 14 times consensus earnings for WABCO Holdings Inc. (NYSE:WBC) for next year and a five-year PEG ratio less than 1. Net income grew by 10% last quarter compared to the second quarter of 2012, off of a 7% increase in sales.
Rounding out our list of common picks between these two billionaires is Visa Inc (NYSE:V). In addition to Lone Pine, many other Tiger Cub hedge funds like credit card stocks and billionaire Andreas Halvorsen’s Viking Global owned 2.6 million shares at the beginning of April. Visa Inc (NYSE:V) carries a premium valuation, with trailing and forward earnings multiples of 22 and 20 respectively, so markets have already priced in high growth for the company. In Q2 Visa experienced a sizable increase in revenue versus a year earlier, so it may be worth keeping an eye on, but for now we would prefer to consider other credit card stocks.
Disclosure: I own no shares of any stocks mentioned in this article.
