Hedge Fund Emerging Sovereign Group’s Stock Picks for 2013

Quarterly 13F filings from hedge funds and other major investors can be quite useful to the broader investment community. One way that we use these filings is by developing trading strategies from pooling our entire database of filings; for example, our list of the most popular small cap stocks among hedge funds, published in our August newsletter, earned an excess return of 18 percentage points between September and January (read more about our hedge fund strategies).

Kevin Kenny’s Emerging Sovereign Group was seeded by one of the biggest names in investing: legend Julian Robertson’s Tiger Management– after Kenny had spent several years at Morgan Stanley. The fund is now majority owned by the Carlyle Group after a 2011 investment. We have gone through its 13F for the end of December 2012, which we can more or less think of as what Kenny and his team liked entering 2013; using these names as free recommendations to be researched further is another way to make use of 13Fs. Read on for our quick take on five of the fund’s largest holdings and compare them to previous filings.

Emerging Sovereign’s top pick was Mondelez International Inc (NASDAQ:MDLZ), a global packaged food company which markets many of the Kraft brands following the breakup of that company. Mondelez is valued at 18 times consensus earnings for 2013. Warren Buffett’s Berkshire Hathaway reported a position of over 30 million shares at the end of September (see Buffett’s favorite stocks). Many other food companies are trading at close to 20 times expected earnings, and so it may be worth comparing Mondelez to its peers, but that valuation still seems high at least on a first pass.

The fund owned 1.2 million shares of Cognizant Technology Solutions Corp (NASDAQ:CTSH), a $24 billion market cap IT consulting and services company. This was down somewhat from three months earlier, when Cognizant was Kenny’s largest single-stock position by market value. In the third quarter of 2012, Cognizant reported close to 20% increases in both revenue and earnings. The stock is priced for continuing growth at a trailing P/E of 24. Billionaire Stephen Mandel’s Lone Pine Capital increased its own stake by 25% in the third quarter to a total of almost 11 million shares (find Mandel’s favorite stocks).