There are a number of ways to use quarterly 13F filings from major investors such as hedge funds in order to improve the investment process. One way is be aggregating these filings and using them to devise large-scale investing strategies. For example, we have found that imitating the most popular small cap stocks among hedge funds can be profitable; in our August newsletter, we listed the most popular names in this category and on average these stocks outperformed the S&P 500 by 18 percentage points between September and January (read more about our hedge fund strategies). We also like to review individual 13Fs, treating them as recommendations from fund managers. If our brief overview of the stock sounds appealing, then an investor can go on to do further research. Read on for our thoughts on Harris Associates’ five largest holdings by market value as of the end of December 2012:
Harris’s top pick was Mastercard Inc (NYSE:MA), reporting a position of 2.6 million shares in the credit card company. Mastercard reported a 10% increase in revenue last quarter compared to the fourth quarter of 2011, and earnings were up as well. While the trailing earnings multiple of 24 is high, the sell-sde expects high earnings growth to continue resulting in a forward P/E of 17. Renaissance Technologies, founded by billionaire Jim Simons, was buying shares of Mastercard during the third quarter of 2012 and owned about 550,000 shares at the end of September (see Renaissance’s stock picks).
The fund also liked Intel Corporation (NASDAQ:INTC), with almost 59 million shares in its portfolio according to the 13F. At a market capitalization of about $100 billion, Intel trades at 10 times earnings whether we consider trailing results or analyst consensus for 2014. This is because the company is expected to be hit hard by the continuing shift towards tablets and smartphones rather than PCs. The stock price is down 22% in the last year, roughly in line with the decline in earnings. Intel does pay a high dividend yield. It was also still one of the most popular tech stocks among hedge funds in the third quarter (find more tech stocks hedge funds loved).
FedEx Corporation (NYSE:FDX) was another of Harris’s favorite stocks. In its most recent fiscal quarter (which ended in November), FedEx experienced an increase in sales but a 12% fall in net income versus a year earlier. The stock carries trailing and forward P/E multiples of 17 and 14, respectively, suggesting that Wall Street analysts are confident that earnings will begin increasing moderately in the next couple quarters. The Bill and Melinda Gates Foundation Trust is another major shareholder in FedEx (research more stocks that the trust is invested in).
Harris owned close to 24 million shares of JPMorgan Chase & Co. (NYSE:JPM), which made our list of the ten most popular stocks among hedge funds for the third quarter of 2012 (see the full top ten list). We think that JPMorgan Chase could well be a value prospect, even after its increase in price over the last few months, with a P/B ratio of just about 1 and a trailing P/E of 9. The bank has also been delivering strong growth on both top and bottom lines; in the fourth quarter of 2012, revenue was up 19% and net income was up 53% compared to the same period in the previous year.
TE Connectivity Ltd. (NYSE:TEL) rounded out Harris’s top five picks as the fund reported owning 25 million shares of the $17 billion market cap diversified electronics company. Value investor Edgar Wachenheim’s Greenhaven Associates had owned 3.9 million shares at the end of the third quarter (check out Greenhaven’s favorite stocks). TE Connectivity’s business has been fairly stable recently, with only a slight rise in earnings. The stock is valued at 15 times trailing earnings which seems about right for a business which is supposed to grow at a low rate.
Disclosure: I own no shares of any stocks mentioned in this article.
