The most popular small cap stocks among hedge funds, as determined by quarterly 13Fs filings (which disclose many of a filer’s long equity positions as of the end of the previous quarter) produce an average excess return of 18 percentage points per year (learn more about our small cap strategy). The information included in 13Fs can also be used as a source of investment ideas, including in different industries and sectors, by seeing which stocks top managers liked. Tiger Cub John Griffin was legendary investor Julian Robertson’s second in command at Tiger Management before founding Blue Ridge Capital in 1996. Here are our thoughts on Blue Ridge’s five largest holdings in the technology sector as of the end of December (or see the full list of stocks the fund reported owning):
The fund’s top pick was Google Inc (NASDAQ:GOOG), with Blue Ridge reporting a position of about 550,000 shares. Google is up 33% in the last year and is now valued at 26 times the company’s trailing earnings. The Motorola Mobility Holdings is still being integrated, providing one channel for earnings to rise going forward, and the advertising business has continued to grow. The forward P/E is only 15, so Google could be a “growth at a reasonable price” stock. A fellow Tiger Cub, billionaire Stephen Mandel, manages Lone Pine Capital which also had Google as its favorite stock (find more of Mandel’s favorite stocks).
Priceline.com Inc (NASDAQ:PCLN), another of Griffin’s top picks, is in a similar position to Google in terms of its earnings multiples. The travel website carries trailing and forward P/Es of 26 and 16, respectively. Last quarter its earnings grew by 28% compared to the fourth quarter of 2011, fueled by strong revenue numbers; Priceline is currently planning to acquire Kayak Software Corp (NASDAQ:KYAK). We think it’s worth considering as a growth play. Philippe Laffont’s Coatue Management joined Blue Ridge, Lone Pine, and other Tiger Cub funds in owning Priceline (check out Laffont’s stock picks).
See three more tech stocks Griffin liked, including Apple:
Blue Ridge cut its stake in Apple Inc. (NASDAQ:AAPL) by 20% but still owned 530,000 shares of the stock. With a number of other funds selling out completely, Apple Inc. (NASDAQ:AAPL) lost its place as the most popular stock among hedge funds last quarter, being replaced by American International Group Inc (NYSE:AIG). See the rest of the most popular stocks among hedge funds. Apple Inc. (NASDAQ:AAPL) is arguably a value stock at 10 times trailing earnings, as the company only needs to maintain its current business without any growth to be undervalued, but many investors worry that lower margins will offset future revenue growth.
Sensors and controls developer and manufacturer Sensata Technologies Holding N.V. (NYSE:ST) was another of the fund’s favorite tech stocks. At a market capitalization of $6 billion, the stock trades at 34 times trailing earnings though the company’s bottom line has been improving and the sell-side consensus places that same valuation at only 13 times earnings for 2014. We wouldn’t be quite so optimistic, and think we’d want to wait for more results from the company. 13F filings show that Bain Capital’s hedge fund Brookside Capital initiated a position of 6.4 million shares between October and December.
Griffin nearly doubled Blue Ridge’s holdings of Equinix Inc (NASDAQ:EQIX), an $11 billion market cap data center services company. The company’s revenues were up 14% in the fourth quarter of 2012 versus a year earlier, helping cause a large percentage increase in net income. A large amount of growth is still priced into the stock, with even the forward earnings multiple being 42, and despite a 52% rise in the last year the most recent data has 15% of the outstanding shares held short. Billionaire John Paulson’s Paulson & Co. reported owning 2.1 million shares of Equinix at the end of December (research more stocks Paulson owned).
Disclosure: I own no shares of any stocks mentioned in this article.