By going through quarterly 13F filings from hundreds of hedge funds and other notable investors, we’ve found that their most popular small cap stocks outperform the S&P 500 by an average of 18 percentage points per year. We think that this is because large institutional investors (such as mutual funds) and the financial media tend to pay less attention to smaller cap stocks, which leads to them more often being mispriced and therefore serving as an attractive long (or short) opportunity. Investors can also screen individual funds’ filings for small cap stocks and do further research on any interesting names which they might not have heard of. Read on for out quick take on Tiger Cub Lee Ainslie’s Maverick Capital’s five largest small cap holdings as of the end of March (or see the full list of the fund’s stock picks).
Maverick increased the size of its position in Skyworks Solutions Inc (NASDAQ:SWKS) by 21%, to a total of nearly 9 million shares. The second quarter of the semiconductor company’s fiscal year ended in March, with Skyworks Solutions Inc (NASDAQ:SWKS) reporting a 17% increase in its revenue versus a year earlier and a large percentage gain on the bottom line as well. Wall Street analysts are quite optimistic about the company, and so while the trailing earnings multiple is a bit outside value territory at 17 the stock is priced at 9 times forward earnings estimates and a five-year PEG ratio of 0.6.
MGIC Investment Corp. (NYSE:MTG) is up over 80% year to date, bringing it to a market capitalization of $2 billion; Ainslie and his team disclosed ownership of about 24 million shares in the 13F after not having owned any of the stock at the beginning of 2013. The provider of mortgage insurance is likely seen as benefitting from an improved housing market, even though recent reports haven’t quite shown the business improving yet. We’d note that the stock has a beta of 3.9, reflecting extreme dependence on broader economic conditions.
The fund initiated a position of 2.5 million shares in hospital company Community Health Systems (NYSE:CYH) between January and March. There was very little growth in revenue or earnings last quarter compared to the first quarter of 2012, though the sell-side is bullish for the next year and a half. Their forecasts show EPS rising to the point where the forward P/E is only 10, not particularly out of the ordinary for a hospital but certainly cheap on an absolute basis. Viking Global, managed by billionaire- and fellow Tiger Cub- Andreas Halvorsen, was also buying Community Health Systems (NYSE:CYH) during Q1 (find Halvorsen’s favorite stocks).