Despite the fact that hedge funds are often viewed as slow and underperforming investment vehicles of the financial world of yesteryear, there are still ways to parse the data to beat the market. At Insider Monkey, we track the best picks of the best hedge funds, and we’ve used this dual-screening technique to help retail investors achieve stock market superstardom.
Our small-cap strategy outperformed the market by 18% a year for more than a decade, and since sharing these picks with the public last fall, we’ve outperformed the S&P 500 index by 22.5 percentage points in only 5.5 months. We’ve also built the Billionaire Hedge Fund Index in collaboration with MarketWatch, which was up on the general indices by the high-single-digits in 2012.
Here’s how to use this strategy yourself, but our point is simple. It has been rewarding, historically, to pay attention to the smart money. With that in mind, let’s take a look at one hedgie in particular: Roberto Mignone’s Bridger Management. Using Mignone’s latest fourth quarter 13F filing with the SEC, we can see which stocks he was using to prepare for 2013. Here’s his top five.
General Motors Company (NYSE:GM) is the hedge fund manager’s No. 1 stock pick, and it has been a rewarding investment of late. Mignone’s GM position comprises roughly 5.5% of his entire equity portfolio, and shares of the automaker are up 19.2% since the start of the fourth quarter. Wall Street’s average price target on GM represents another 27% upside from current levels.
The crux of this stock’s bullish thesis lies in its ability to provide solid growth at a reasonable price (GARP). Bolstered by strong emerging market demand and its ability to expand assembly operations domestically, the sell-side forecasts EPS growth of 27% next year, and a long-range annual rate of 12-13% through at least 2017. Shares of GM still trade at a meager PEG of 0.77, and are at parity with their book valuation. It’s easy to see why Mignone holds the stock with such high regard.
Morgan Stanley (NYSE:MS) is the hedgie’s second largest equity position, slightly smaller than his stake in GM. Though they operate in completely different sectors, Morgan Stanley’s investment idea is essentially the same: it’s a GARP play. At just over 0.7 times book, shares of MS trade at one of the lowest valuations of all the S&P 500-listed financial stocks, and its growth potential is one of the best. On average, analysts expect Morgan Stanley to generate EPS growth of 16.3% a year over the next half-decade—5th highest in its entire sector.
TripAdvisor Inc (NASDAQ:TRIP), meanwhile, is Mignone’s No. 3 pick, and is also a popular investment choice of Stephen Mandel, Jim Simons and George Soros (check out Soros’s full portfolio here). TripAdvisor has been in Mignone’s portfolio since the first quarter of last year, and over the past twelve months, shares of the online travel company have gained a whopping 42.8%.
Google Inc (NASDAQ:GOOG) has been in TripAdvisor’s proverbial “backyard” ever since its 2011 acquisition of ITA Software, but these are only issues over the long, long term. Looking at a shorter time horizon, TripAdvisor is a strong momentum play, through and through.
Why is this the case?