By Matt Doiron
Chris Hansen's Valiant Capital has been underperforming the market thus far in 2013, adding injury to the insult earlier this year from the NBA's rejection of his attempt to buy the Sacramento Kings and move the team to Seattle. Reports are that his fund was down over 10% in the first half of the year. Valiant is one of the hundreds of hedge funds which Insider Monkey tracks as part of our work developing investment strategies. We've actually found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy) with a portfolio following this strategy outperforming the S&P 500 by 33 percentage points in the last 11 months.
While Hansen's picks didn't do well in the first half of the year, it's worth seeing how he has been playing the current market and if any of his picks make for interesting ideas. Read on for our thoughts on Valiant's five largest holdings from the end of June, see the full 13F on the SEC's website, or compare these picks to those in previous filings.
The largest position in the 13F was Valiant's nearly 260,000 shares of Apple (AAPL). Billionaire activist investor Carl Icahn recently announced a position in Apple, stating that he believes the company is undervalued and can afford a more expansive buyback program. The stock is valued at 12 times earnings, whether we compare the valuation to Apple's trailing earnings or to analyst expectations for the forward fiscal year. Since a large share of the market capitalization is cash, investors seem to be pricing in at least a moderate decrease in the company's earnings going forward.
Hansen and his team reported a position of about 90,000 shares in Google (GOOG) as of the beginning of July. With help from the integration of Motorola Mobility Holdings and an increase in Android's market share in tablets and smartphones, Google has been recording double-digit growth rates on both top and bottom lines. Of course, the continued strength of the search business has not hurt either. The stock trades at 17 times forward earnings estimates meaning that Google could be a "growth at a reasonable price" stock if it continues these growth rates.
The fund built its Facebook (FB) stake from what had been a small position at the beginning of April to 3.1 million shares by the end of June. Facebook briefly touched its IPO price and even after cooling a bit is still up over 80% in the last year. The social networking company's revenue continues to rise, with investors becoming more optimistic that management is finding ways to generate advertising dollars from its traffic. Still, the valuation looks a bit high to us (Facebook's forward earnings multiple is 39) and so we would avoid the stock.
Liberty Global (LBTYA) was another of Hansen's top picks with the filing disclosing ownership of just over 1 million shares. The global TV, Internet, and phone company recently completed its acquisition of Virgin Media, strengthening its market position. Wall Street analysts expect high earnings growth over the next several years from the combined company, bringing the five-year PEG ratio to just below 1 despite a high valuation on even a forward earnings basis. Of course, integration risk would be a concern here as well as the high growth required to justify the current stock price.
Valiant slightly trimmed its stake in Baidu (BIDU) but the Chinese search engine remained one of the fund's largest holdings by market value. Higher costs erased the 39% revenue growth that Baidu experienced last quarter compared to the second quarter of 2012, leading to lower profits, and many investors are also concerned that growth may be slowing in China. With trailing and forward P/Es of 30 and 23, respectively, this is another stock which seems quite speculative unless the company can manage to hold its margins steady over the next few years and therefore capitalize on a strong top line.