By Matt Doiron
More and more hedge funds and other notable investors are filing their 13Fs for the fourth quarter of 2012, disclosing many of their long equity positions as of the end of December. While the portfolios are from several weeks ago, there are still a few ways for investors to use the filed information. We have found, for example, that the most popular small cap stocks among hedge funds outperformed the market by 18 percentage points even though we started measuring the returns a couple of weeks after 13Fs have been made public (check out the details here).
It can also be productive to treat individual 13Fs as free recommendations from fund managers- not necessarily to be followed, but to be considered briefly and then researched further if they seem appealing. We have picked out the top five stock picks from Russell Hawkins' Hawkins Capital. Read on for our quick take on these stocks and compare them to previous filings.
Hawkins' top pick in its Q4 13F filing was oil major Royal Dutch Shell (RDS.A), reporting a position of about 2.3 million shares. Royal Dutch Shell stands out among many oil majors for its high yield (4.7% going by recent dividend payments and the current share price) if an income investor is willing to accept the related commodity price risk. The company's revenue and earnings were up slightly last quarter compared to the fourth quarter of 2011. At 8 times earnings it could be worth a closer look. Cliff Asness's AQR Capital Management owned about 550,000 shares at the end of September.
3 million shares of Oaktree Capital Group (OAK) made the $1.5 billion market cap alternative investment manager another of Hawkins' favorite stocks. Oaktree is another attractive dividend payer, with a yield of over 4% as well. While revenue has been down, Wall Street analysts expect a strong recovery with their consensus estimates implying a current-year P/E of 10 and a five-year PEG ratio of 0.9. Billionaire David Einhorn's Greenlight Capital has been another investor in Oaktree, with 1.9 million shares in its own portfolio at the end of the third quarter (find Einhorn's favorite stocks).
The fund also liked Intel (INTC) with a position of 5.4 million shares. Intel had made our list of the ten tech stocks hedge funds were crazy about in Q3. Intel trades at 10 times earnings, whether we use trailing earnings figures or analyst expectations for 2014. The stock is down 22% in the last year as investors worry about the PC ecosystem, where much of Intel's product revenue comes from. We'd note that once again Hawkins has picked a stock which pays a dividend yield of over 4%. Even with the risks of its business the pricing might make Intel at least somewhat appealing.
Aon (AON), an $18 billion market cap insurance broker, was another of Hawkins' favorite stocks. While the trailing P/E is 19, Aon did experience a 10% increase in net income in the fourth quarter of 2011 compared to the same period in the previous year and analyst expectations for continued growth bring the forward P/E down to 11. Of course, we wouldn't take those projections at face value. Glenview Capital, managed by Larry Robbins, was buying the stock in the third quarter of last year.
Hawkins rounded out its five largest holdings with 1.2 million shares of Ace Limited (ACE). Ace is a property and casualty insurance company with a market capitalization of $29 billion. Ace's trailing P/E is 11, which we would say is in line with the low earnings growth it reported in its most recent quarter compared to Q4 2011. Billionaire Ken Griffin's Citadel Investment Group increased its own stake in Ace between July and September to a total of 1.6 million shares.