By Matt Doiron
Citadel Investment Group, a hedge fund managed by billionaire Ken Griffin, has filed its 13F for the first quarter of 2013 with the SEC (see the full filing on the SEC's website). Our database of 13F filings, which we use to develop investing strategies (including our finding that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year), allows us to track individual managers' holdings over time and compare them to stocks satisfying a number of criteria, including those which insiders have been buying recently (we also track insider trading activity). See a history of Citadel's stock picks. Here are our thoughts on the fund's five largest holdings as of the end of March which at least one company insider has bought within the last three months:
Griffin and his team increased the size of their position in Coca-Cola (KO) to a total of 4.1 million shares during Q1, while an insider was buying in mid March at an average price of $39.16 per share. While the company has not been doing well recently- both sales and net income were down last quarter compared to the first quarter of 2012- it is a classic defensive stock going by its beta of 0.4 and its yield of 2.6%. With consumer staples being in high demand in the current market environment, Coca-Cola trades at over 20 times its trailing earnings as a result.
Also seeing an insider purchase in March was Charter Communications (CHTR), a $12 billion market cap TV, Internet, and phone company which Citadel owned 1.5 million shares of per its 13F. Charter's stock price has risen 76% over the last year, easily beating the S&P 500, thought we'd note that in statistical terms it too is something of a defensive play with a beta of 0.4. The trailing EV/EBITDA multiples is 9.1x, though the company's growth rate at least on the top line has been fairly low going by recent reports. We don't think this is a wise pick to imitate.
Dollar General (DG) was another of the fund's picks that at least one insider has bought recently. Interestingly, it too has little exposure to macro conditions with the stock's beta being particularly low at 0.1. This is a weaker relationship to the overall economy than can be found at Target and Wal-Mart, and Dollar General carries something of a premium to those two stocks as a result: it is valued at 19 times its trailing earnings. We would note, however, that the fourth quarter of its fiscal year (which ended in early February) showed little change in sales versus a year earlier.
Citadel cut its stake in Boeing (BA) by 40% but still owned 1.5 million shares at the beginning of April; a month later, in early May, one of the company's Board members bought 1,500 shares at an average price of $91.59. Boeing carries trailing and forward earnings multiples of 19 and 14, respectively, suggesting that the market is dependent on future earnings growth and that analysts expect earnings per share to improve over the next year and a half. The company encountered safety issues with its new Dreamline aircraft earlier this year, but business conditions appear to have returned to normal.
An executive vice president at Chevron (CVX) was buying about three months ago, and Griffin initiated a position of about 1 million shares between January and March, making the oil major the fifth stock on this list. Large oil companies are generally showing low earnings multiples at this time, and Chevron is no exception at 10 times forward earnings estimates. However, both top and bottom lines showed weaker numbers in its most recent quarter compared to the same period in the previous year. Chevron does deserve some consideration as a value stock, however, and currently pays a dividend yield of 3.2%.