Ken Heebner and Crispin Odey manage their funds from different parts of the world, but their investment strategies and stock picks are surprisingly similar. They are great contrarian investors who are not afraid to make big bets against the market. Crispin Odey is well-known for his anticipation of the credit crunch of 2008, whereas Kenneth Heebner is known for betting against tech stocks in 2000 and 2001. Despite the fact that these hedge fund managers do not entirely operate and invest in the same way, 20% of their portfolios are identical, with their viewpoints overlapping on 14 stocks. We’ll take a look at five of the most noteworthy stocks they hold in common, which are DR Horton Inc. (NYSE:DHI), Lennar Corp. (NYSE:LEN), Whirlpool Corp. (NYSE:WHR), Citigroup Inc. (NYSE:C) and Apple Inc. (NASDAQ:AAPL).
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole; yet investors have been stuck (until now) investing in all of a hedge fund’s stocks: the good, the bad, and the ugly. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? These top small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Even better, since the beginning of forward testing at the end of August 2012, the strategy worked just as our research predicted and then some, outperforming the market every year and returning 142% over the last 33 months, which is more than 84 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details). We pay attention to hedge funds’ picks in large-cap stocks like Apple Inc. and Citigroup too, while recognizing that their small-cap stock picks generate more alpha.
Let’s start off by looking into America’s largest homebuilder, DR Horton Inc. (NYSE:DHI). Both fund managers appear to be of the same mind that homebuilders are likely to outperform the market. Ken Heebner’s Capital Growth Management held its position in DR Horton unchanged during the first quarter at 9.07 million shares valued at $258.40 million, while Crispin Odey’s Odey Asset Management Group reported selling a sizable stake of 10.25 million shares, ending the first quarter with 5.24 million shares worth $149.35 million. The shares of DR Horton have grown by over 10% year-to-date despite suffering a few slumps during the year. This month, U.S. homebuilder sentiment rose to its highest level since September according to the National Association of Home Builders. The Wells Fargo Housing Market index reached a figure of 59, compared to 54 reported in May. Therefore, DR Horton still has more room to run as the recovery in the U.S. housing market has been picking up steam lately. Within our database, Ken Griffin’s Citadel Investment Group represents the second-largest investor in DR Horton Inc. (NYSE:DHI), with 8.74 million shares, chasing Ken Heebner’s Capital Growth Management.
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The second spot on our list is also occupied by another homebuilder, Lennar Corp. (NYSE:LEN). According to its most recent 13F filing, Capital Growth Management didn’t change its position in Lennar Corp. (NYSE:LEN) either, ending the quarter with 6.78 million shares worth $351.27 million. However, it seems that Crispin Odey is cashing out of the U.S. real estate sector after some of its first quarter gains, as he decreased his position in Lennar by 1.54 million shares to 1.57 million shares, which are valued at $81.19 million. The stock has gained 16% since the beginning of the current year amid the strong recovery in the U.S. housing market. Lennar reported earnings per share of $0.79 for its fiscal second quarter of the year, beating analysts’ estimates of $0.64 per share as well as the earnings of $0.61 per share reported during the same fiscal quarter of 2014. Additionally, the company posted revenues of $2.39 billion, which marks an increase of 31% year-over-year. Yet again, Ken Griffin’s Citadel Investment remains bullish on the real estate industry through its stake of 5.39 million shares in Lennar Corp. (NYSE:LEN).
Ken Heebner and Crispin Odey are making different changes to their positions in Whirlpool Corp. (NYSE:WHR). On one hand, Capital Growth Management increased its position in Whirlpool Corp. (NYSE:WHR) by 597,000 shares to 742,000 shares, which are valued at $149.93 million. On the other hand, Odey Asset Management reduced its stake in the company by 180,466 shares, ending the quarter with 252,408 shares worth $51.00 million. Whirlpool shares have dropped by 8% year-to-date and it seems that Crispin Odey has made the right move. The lower-than-expected results for the first quarter caused the company’s management to cut its earnings forecast for the current year. Whirlpool, which is the world’s largest home-appliances manufacturer, is expected to be impacted by the currency exchange rates and by the persistent weak demand in Brazil. Within our database, value investor Edgar Wachenheim’s Greenhaven Associates is by far the largest shareholder in Whirlpool Corp. (NYSE:WHR), owning 2.48 million shares.
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Both Ken Heebner and Crispin Odey have decreased their positions in Citigroup Inc. (NYSE:C), even though the size of these sell-offs differs quite a bit. Capital Growth Management reduced its stake in Citigroup by only 50,000 shares, reporting holding 4.04 million shares worth $208.14 million in its recent 13F filing. Meanwhile, Odey Asset Management reduced its position by 2.10 million shares, ending the quarter with 938,331 shares valued at $48.34 million. The shares of Citigroup have augmented by over 4% year-to-date despite suffering a significant plunge at the beginning of the year. Just recently, Citigroup acquired Brooks Brothers’ credit card accounts, which will boost the company’s growing list of retail credit cards. Some officials at Citigroup have claimed that this acquisition represents a significant relationship for Citi Retail Services and will continue the company’s momentum gained from other new partnerships and renewals. From the pool of over 700 hedge funds that we observe, Boykin Curry’s Eagle Capital Management is indisputably the largest investor in Citigroup Inc. (NYSE:C), with 26.35 million shares.
Last but not least, we’ll take a look at the positions of the two aforementioned investors in Apple Inc. (NASDAQ:AAPL). Ken Heebner opened a long position in Apple Inc. (NASDAQ:AAPL) during the most recent quarter, with 95,000 shares valued at $11.82 million. In the meantime, Crispin Odin decreased his stake in the tech giant by 24,689 shares, ending the quarter with 337,420 shares worth $41.98 million. Unsurprisingly, the shares of Apple have surged over 14% year-to-date thanks to its incredible success with the iPhone 6. The shipments of iPhone 6 continue to increase, which will most probably allow the company to set new financial records in the upcoming months. Additionally, the recently-launched Apple Watch, which is the first new product launch of the company over the last few years, is also unlocking new opportunities for the tech giant. Carl Icahn’s Icahn Capital LP is the largest investor in Apple Inc. (NASDAQ:AAPL), owning a sizable stake of 52.76 million shares.
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