Lou Simpson’s Top Stock Picks Include Berkshire Hathaway

SQ reported a position of 3.4 million shares in home improvement retailer Lowe’s Companies, Inc. (NYSE:LOW). Lowe’s was the third most popular retail stock among hedge funds in our database of 13F filings (see the full top ten list) and we think that this is because of a general perception that the housing market is improving and a trailing P/E multiple of 22. While the valuation is high in terms of historical results, Lowe’s would be a “growth at a reasonable price” stock if a housing recovery drives higher earnings. We’d consider the pricing to be too high for buying at this point; there is plenty of growth already captured in the current valuation.

Buffett’s favorite bank Wells Fargo & Company (NYSE:WFC) rounded out SQ’s top picks as the fund owned 2.8 million shares at the end of September. Wells Fargo wasn’t as popular as some other big banks, but it still made our list of the ten most popular stocks among hedge funds and we think that this was due to its reputation as a high-quality bank and the fact that it is cheap in terms of its earnings. Wells Fargo carries trailing and forward P/Es of 11 and 10, respectively, and its revenue and net income have been improving. Even at a premium to book value we think that it is one of the better buys in the financial sector and certainly safer than some of its peers.