By Matt Doiron
Louis Bacon manages over $15 billion in assets under management at his fund Moore Global, with the investor's personal wealth being about a tenth of that amount. We follow billionaires and hedge funds because the most popular stocks among these investors outperform the market (see the details here). Louis Bacon and his investment team recently revealed their holdings in a regulatory filing for the fourth quarter of 2012, disclosing many of their long U.S. equity positions as of the end of December (and therefore the beginning of 2013). We have gone through the filing seeking to provide information to investors who are interested in doing more research on Bacon's recommendations to see if they are good fits for their own portfolio. Read on for our quick take on Moore's five largest stock holdings by market value and compare them to previous filings.
The fund's top pick was JPMorgan Chase & Co. (JPM). Despite the London Whale incident JPMorgan Chase's stock price has risen 27% from its levels a year ago due to general outperformance in the financial sector. The bank's market capitalization, at $186 billion, is approaching book value. JPMorgan Chase has also been doing quite well at monetizing its assets efficiently; the stock trades at 9 times trailing earnings, with revenue and net income both being up strongly last quarter compared to the fourth quarter of 2011. Billionaire Ken Fisher's Fisher Asset Management is another large investor in JPM (find Fisher's favorite stocks).
Moore owned 4.7 million shares of Citigroup Inc. (C), down slightly from what it had reported for the end of September. In book terms the bank looks cheap at a P/B of 0.7, as investors express skepticism about the quality of Citigroup's assets and management. The trailing earnings multiple is quite high, and even with the bank expected to improve in the coming years the forward P/E of 8 is not much lower than at its peers. Citi did experience high earnings growth in the fourth quarter of 2012 versus a year earlier, but performance on the top line was much more modest.
Bacon and his team did buy Bank of America Corp (BAC) during the quarter, closing December with a total of nearly 12 million shares in their portfolio. Bank of America is an even more extreme case of "cheap but performing poorly" than Citi, with a discount to book value of about 40% both with large decreases in both revenue and earnings between Q4 2011 and last quarter. Revenue, for example, fell 25%. As a result we would be concerned about Bank of America right now - it certainly has value prospects, but the other banks we've mentioned as well as Wells Fargo seem like better buys.
American International Group, Inc. (AIG) became the most popular stock among hedge funds during the fourth quarter of 2012, with enough funds and other notable investors buying it that it became more widely owned than Apple. The insurer trades at a large discount to the book value of its equity at a P/B ratio of 0.6. Per analyst expectations, it is cheap in terms of earnings as well: AIG's five-year PEG ratio is 0.5. We agree that it is a good value stock, and think that even with some allowance for potentially poor assets a price-to-book ratio of 0.7 or 0.8 would be more appropriate.
Moore roughly doubled the size of its position in Assured Guaranty Ltd. (AGO), a $3.8 billion market cap insurer of public finance and infrastructure securities. This made it the fifth-largest single-stock holding in the fund's portfolio. With a beta of 2.1, Assured Guaranty is highly exposed to the broader economy. The company has been doing very poorly recently but again the value metrics seem to account for that: analyst consensus implies a current-year P/E of 7 and a five-year PEG ratio of 0.7. There is a moderate discount to the book value of the company's equity here as well. We would be interested in getting a better understanding of the business.