By Matt Doiron
Several weeks after the end of each quarter, hedge funds and many other major investors submit 13F filings to the SEC, disclosing many of their long equity positions as of the end of the previous quarter. We track these filings and use them to develop investment strategies; for example, we have found that the most popular small-cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (learn more about hedge funds' small cap picks). 13Fs from notable fund managers, including Tiger Cub John Griffin of Blue Ridge Capital, can also serve as sources of initial investment ideas which can then be researched further if they are of interest. Read on for our quick take on Blue Ridge's five largest holdings by market value as of the end of March, see the full filing on the SEC's website, or compare these stocks to what Blue Ridge has previously owned.
Gilead Sciences (GILD) is up about 50% year to date after accounting for a stock split, which has helped make that name Blue Ridge's largest position in the 13F. The bio-pharmaceutical company's earnings increased by over 60% last quarter compared to the first quarter of 2012, primarily based on higher net margins but also due to an 11% increase in the top line. Some further growth is already reflected in the stock price, with a trailing P/E of 31, but given Gilead's recent performance it still might be worth looking into as a potential growth play.
Griffin and his team reported a position of just over 5 million shares in Thermo Fisher Scientific (TMO), the medical equipment and diagnostics company. Another strong performer in the market over the last year, Thermo Fisher carries trailing and forward P/Es of 26 and 15, respectively- reflecting that currently its earnings are not too high in terms of its valuation but that Wall Street analysts generally agree that net income will increase strongly over the next couple years. Growth rates aren't too high right now, however, so we'd be wary of taking their projections at face value.
Blue Ridge cut its stake in American International Group (AIG) though it still owned 8.7 million shares of the insurer at the beginning of April. AIG has been rallying in price, but it still valued well below the book value of its equity with a current P/B ratio of 0.7. That indicates that there is still some upside to the stock if the company's internal asset valuations are accurate. AIG is also arguably a value play in earnings terms, as analyst consensus for 2014 implies a forward P/E multiple of 11.
The fund kept its holdings of Monsanto (MON) constant during the quarter at a little more than 3 million shares. The second quarter of Monsanto's fiscal year ended in February, a period in which revenue grew 15% versus a year earlier and net margins were slightly higher as well. The market has already recognized something of an opportunity here as well, with both trailing and forward earnings multiples above 20; apparently the sell-side does expect growth to slow going forward, so investors should be careful of thinking of it as a growth stock for now.
Griffin also didn't touch his 6.5 million share position in Dollar Tree (DLTR) between January and March. Like other dollar stores, Dollar Tree is more or less independent of broader market conditions: its beta is 0.1. It's been another strong performer recently; the fourth quarter of its fiscal year ended in February with the company recording double-digit growth rates in sales and net income compared to the previous Q4. At 18 times trailing earnings, Dollar Tree might be worth its premium to big-box discount retailers such as Target and Wal-Mart.