We track quarterly 13F filings from hundreds of hedge funds, including Tiger Cub John Griffin’s Blue Ridge Capital, as part of our work developing investment strategies (for example, according to our research the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year). The most recent round of 13Fs is a bit old- they disclose many of a fund’s long equity positions from the end of Q1 2013- but we can still make use of them be looking for long term picks in a fund’s portfolio (the idea being that the investment team probably still owns a large amount of these stocks). Read on for our quick take on the five largest holdings in Blue Ridge’s portfolio which it owned at least $100 million of at the end of March 2011 or see the full list of the fund’s stock picks over time.
Griffin and his team owned a little more than 5 million shares of Thermo Fisher Scientific Inc. (NYSE:TMO) according to the most recent filing. The $32 billion market cap medical instruments and equipment company has been growing its earnings (net income was up over 20% in the first quarter of 2013 versus a year earlier) but revenue growth has been more modest. As a result we’d be concerned as to how sustainable earnings growth primarily through expanded margins might be. The trailing P/E is 26 and so it should probably be avoided on valuation.
The fund has also been a long term owner of LIBERTY GLOBAL PLC (NASDAQ:LBTYA), the $21 billion market cap provider of TV, broadband, and phone access. The company recently purchased Virgin Media as part of its growth strategy, and reports from even before that acquisition had shown rising sales. At current prices Liberty Global’s enterprise value is more than 10 times trailing EBITDA, but partly due to overall strength in the industry Wall Street analysts are bullish. High EPS growth expectations going forward result in a five-year PEG ratio below 1.
Rounding out our list of Blue Ridge’s long term stock picks is Amazon.com, Inc. (NASDAQ:AMZN). Amazon.com, Inc. (NASDAQ:AMZN)’s earnings have been very low on a trailing basis, and even with analysts looking for something of a turnaround in the company next year the forward earnings multiple is over 90. Bulls on the stock believe that Amazon.com, Inc. (NASDAQ:AMZN) will soon be able to shift into a profit-capturing mode following its period of expansion, but that seems like a risky move to us. Billionaire Steve Cohen’s SAC Capital Advisors was buying the stock in the first quarter of the year (find Cohen’s favorite stocks).
These long term picks from Griffin and his team are generally highly dependent on future earnings growth, something we don’t like to rely on when a company’s current business can’t justify its valuation. Investors might look at Dollar Tree as well as other dollar stores to see if that industry can support substantial growth over the next several years; that stock or one of its peers might have enough solid prospects to make it worth considering at current pricing.
Disclosure: I own no shares of any stocks mentioned in this article.
