Hedge Fund North Run Capital’s Stock Picks for 2013

The investment team also liked General Motors Company (NYSE:GM), adding shares of the auto manufacturer which was actually one of the ten most popular stocks among hedge funds in the third quarter (see the full top ten list). At a trailing P/E of 11, and with earnings actually down, GM doesn’t look like a value stock at first glance. However, a number of value investors have argued that the automaker is well positioned to capitalize on a recovery in the US and Europe. Among their arguments is that US consumers will have to replace their aging cars (the consumer auto fleet is abnormally old), creating demand.

Adobe Systems Incorporated (NASDAQ:ADBE) was another of North Run’s top picks. The stock looks pricy at 24 times trailing earnings; while net income was up over 20% in the fourth quarter of Adobe’s last fiscal year (which ended in November), revenue growth was much lower and we doubt that earnings can continue to rise at a similar rate on margins alone. In January we reported on an insider purchase at Adobe (learn more about the insider purchase and our thoughts on the company).

North Run initiated a position of 1.1 million shares in Aetna Inc. (NYSE:AET) during the fourth quarter of 2012. High health care costs outpaced growth in Aetna’s premium revenue over the course of 2012, resulting in the company reporting a sharp decline in earnings in Q4 from its levels in the fourth quarter of 2011 despite higher revenue. The trailing and forward P/Es are 11 and 9, respectively. Coincidentally, Aetna also recently had an insider buy in; when we looked at the company we concluded that its peers in the health insurance industry might actually be better buys (find out which stocks we liked better).

Disclosure: I own no shares of any stocks mentioned in this article.