By Matt Doiron
We have been processing the most recently released set of 13F filings from hedge funds and other major investors for a number of purposes that may be of assistance to a retail audience. For example, we have found that the most popular small-cap stocks among hedge funds beat the S&P 500 by an average of 18% per year (see the list of these stocks and their returns since September). We also like to provide a brief summary of top picks from notable investors, including billionaires. Billionaire Bruce Kovner's Caxton Associates was one fund which recently filed its 13F for December 2012. See the fund's current and previous holdings and read on for our thoughts on Caxton's five largest 13F stock holdings as of the beginning of 2013:
The fund's top pick was American International Group, Inc. (AIG), with Caxton's position increasing by 17%; it is now over 10 million shares. AIG passed Apple to become the most popular stock among hedge funds during the fourth quarter of 2012 (see what other stocks were popular among hedge funds). At a steep discount to the book value of its equity - AIG's P/B ratio is only 0.6 - it is certainly quite cheap in terms of its assets. We think that one major factor holding back the stock price is that institutions such as mutual funds are reluctant to buy; once they regain confidence in the company, returns could be strong.
Kovner and his team were also buying shares of Bank of America Corp. (BAC), and closed December with a total of 8.5 million shares in their portfolio. Bank of America's stock price is up 47% in the last year but the stock still trades at about 60% of book value. However, the bank has not been performing well in terms of monetizing these assets and Wall Street analyst expectations imply a forward P/E of 9. While this might look low it actually represents a premium in earnings terms to many of Bank of America's peers. We think it's too risky compared to some other large banks.
Caxton more than doubled its stake in General Motors Company (GM) during the fourth quarter of 2012. General Motors has become a popular value stock; its earnings multiples are low (the trailing and forward P/Es are 9 and 6 respectively) and many investors insist that U.S. consumers will soon have to replace a historically old auto fleet, creating a substantial upside for the auto industry. However, we think that any general industry trends should apply to other auto and auto related companies as well, some of which are even cheaper on a multiples basis than GM. We'd be particularly interested in comparing GM with its competitors.
Sprint Nextel Corporation (S) was another of the fund's favorite stocks. Sprint is something of a special case from an investment point of view as it prepares to sell a large stake in itself to Softbank. It is also complicated from a strategic and valuation perspective: while it is unprofitable on a trailing basis and analyst consensus is for it to remain in the red for 2013, some bulls argue that it has a superior competitive position against other phone companies. However, its revenue was up only slightly last quarter compared to the fourth quarter of 2011.
The fifth largest stock position in Caxton's portfolio was its 1.6 million shares of Wells Fargo & Company (WFC). Wells Fargo is generally perceived by investors to be a safer bank than peers such as Bank of America, and as a result it actually trades at a premium to the book value of its equity. Still, the sell-side does not consider it overvalued, and in fact consensus has its forward earnings multiple in line with Bank of America's at 9. We think that Wells Fargo is worth its premium to that company, though JPMorgan Chase (JPM) is cheaper in both book and earnings terms and so might be an even better value.