John Griffin, who manages Blue Ridge Capital, was formerly legendary investor Julian Robertson’s second-in-command at Tiger Management. We track Blue Ridge’s quarterly 13F filings alongside those of hundreds of other hedge funds in our research on investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). Because our database tracks filings over time, it’s also possible to see which stocks a fund added to its portfolio last quarter; these free investment ideas can then be reviewed in search of any names which might be good prospects for further research. Read on for our quick take on Blue Ridge’s five largest new holdings from the first quarter of this year or see the full list of Griffin’s stock picks.
The fund initiated a position of 4.7 million shares in Citigroup Inc. (NYSE:C) between January and March. With other hedge funds buying the bank as well, Citigroup Inc. (NYSE:C) was the fourth most popular stock among hedge funds in the first quarter of 2013 according to our database (find more of hedge funds’ favorite stocks). Even after a nearly 80% rise in price over the last year, Citigroup Inc. (NYSE:C) still has some value appeal as it trades at a discount to the book value of its equity (the P/B ratio is 0.8). Revenue and earnings have been up, and analyst expectations imply a forward P/E of 9.
Comcast Corporation (NASDAQ:CMCSA) was another of Griffin’s new picks with the filing disclosing ownership of 4.6 million shares. Comcast’s net income rose by 17% last quarter compared to the first quarter of 2012, though the company’s revenue grew at a much slower rate of only 3%. The trailing P/E of 17 places the stock at about even pricing with other media and entertainment companies such as Disney. Considering that Comcast joins its media assets under the NBC Universal name with an attractive cable and Internet business, it might be worth investigating.
Blue Ridge bought 1 million shares of Netflix, Inc. (NASDAQ:NFLX) in the first quarter of 2013. The incredibly volatile stock’s huge upswing in price over the last year has brought it to a valuation of 69 times consensus earnings for 2014, and that’s with analysts forecasting more than a doubling in EPS next year after an increase to $1.41 per share for the current year. The spread in analyst projections on a forward basis is very wide, with a low estimate of 90 cents per share and a high estimate of $4.70. The most recent data shows that 20% of the float is held short.
Griffin and his team appear that they may be interested in an entertainment theme, with CBS Corporation (NYSE:CBS) as another of their largest new picks. We would note that this could be a special situations play instead, as the company plans to spin out its outdoor advertising business as a real estate investment trust. REITs receive favorable tax treatment and so are more tax efficient, though we would note that recent reports have indicated that the IRS may revise its standards for REITs to be more restrictive. CBS currently trades at 19 times trailing earnings.
According to the 13F, Blue Ridge owned 4.6 million shares of The Gap Inc. (NYSE:GPS) as of the beginning of April. The retailer has actually been doing well recently; in its most recent quarter revenue grew by 7% compared to the same period in the previous fiscal year, and margins improved enough to drive a 43% increase on the bottom line. Obviously we wouldn’t expect that degree of growth to continue, but hopefully earnings can rise along with increasing sales. The trailing P/E is 16 and so Gap requires little further growth to justify its current valuation.
As a result Gap joins Comcast and Citigroup Inc. (NYSE:C) as interesting prospects in our book- it and Comcast certainly aren’t candidates for pure value status, but their businesses have been performing well recently and if they can continue growing at similar levels they may prove undervalued at current prices. Netflix, meanwhile, seems to speculative for us to buy right now. That’s also somewhat true with CBS; while its valuation isn’t as extreme, we can’t be sure how dependent the current price is on the spinout’s REIT candidacy.
Disclosure: I own no shares of any stocks mentioned in this article.