By Matt Doiron
We track hundreds of quarterly 13F filings from hedge funds and other notable investors for a variety of purposes. For one, we've found that it's possible to use the information in 13Fs to develop profitable investment strategies; for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about hedge funds' small cap picks). Another common usage of 13F filings is as sources of free investment ideas for investors who like to see what top managers are doing and then do further research on any stocks which seem to be good values. We have gone through the most recent 13F for billionaire Kerr Neilson's Platinum Asset Management (see the full filing on the SEC's website) and here are our thoughts on its five largest holdings as of the end of March (or compare these picks to those in previous filings):
Platinum reported a position of nearly 36 million shares in Bank of America (BAC). In what has been a good year for large banks, Bank of America has been particularly prosperous with the stock rising over 90% in the last 52 weeks. It still trades at a significant discount to the book value of its equity, with a P/B ratio of 0.7. However, the return on these assets remains low compared to other large banks and so in earnings terms Bank of America is not as apparent a value play: consensus forecasts for 2014, for example, imply a forward P/E of 10 which is not that distinctive from its peers.
The fund owned a little over 13 million shares of Microsoft (MSFT), reflecting very little change from the beginning of 2013. Microsoft recently announced its new Xbox One device, designed to serve as an all-purpose entertainment hub rather than a gaming console, and between this and its new versions of Windows and Office the tech company has been very active. A rally in the stock which began in mid-April has brought Microsoft up a total of 27% year to date, bringing its dividend yield down to 2.7%- still fairly respectable- and its forward earnings multiple up to 11.
Neilson and his team also liked Google (GOOG), with close to 370,000 shares of that tech company in their portfolio at the end of March. Google's financial performance has been very strong, and in the first quarter of 2013 net income grew 16% versus a year earlier. The core search business has been a strong performer and of course the Android operating system gives Google a strong position in the tablet and smartphone ecosystem. However, markets are already pricing in high growth at the company as shown by the fact that the trailing P/E is 27.
Sina (SINA), a $4.1 billion market cap Chinese Internet portal, has been another of Platinum's top picks with the most recent 13F disclosing ownership of over 5 million shares. Expected growth is even higher here than it is at Google- in fact, even with analysts calling for large increases on the bottom line over the next couple years the stock is currently valued at 33 times forward earnings estimates. Revenue has been up nicely but that is a quite aggressive valuation and so we would avoid Sina at this time.
According to the 13F, the fund trimmed its holdings of Jacobs Engineering Group (JEC) but with the stock price surging 26% between January and March the engineering and construction services company managed to break into Neilson's top five picks. Net income was up strongly in its most recent quarter compared to the same period in the previous year, though revenue only grew by 5% and so we'd be concerned as to how sustainable this earnings growth will be in the future. At its current valuation of $7.2 billion, Jacobs trades at 18 times trailing earnings.