By Matt Doiron
We track quarterly 13F filings from hundreds of hedge funds, including Tiger Cub hedge fund Tiger Global (Chase Coleman, one of the co-founders of the fund and former Tiger Management employee, has become a billionaire due to the fund's success). There are a number of ways for investors to use 13Fs. For one, we've found that it's possible to develop investment strategies based on the included information: the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year, and our own model portfolio based in this result outperformed the S&P 500 by 33 percentage points in the last 11 months (learn more about our small cap strategy).
We can also use our database of filings to identify changes that individual funds made to their portfolios during the previous quarter, including picking out their new stock picks. Read on for the five largest new single-stock positions in Tiger Global's 13F for the second quarter of 2013, see the full filing on the SEC's website, or compare these picks to those in the fund's previous filings.
The largest new pick in the normally tech-focused fund's portfolio was Coca-Cola Enterprises (CCE), which bottles and distributes Coca-Cola products in many European markets. Revenue and earnings were both down in the second quarter of 2013 versus a year earlier, but investors are actually expecting growth in the company's profits over the next several years (likely anticipating a recovery in Europe). As a result the stock is valued at 18 times trailing earnings. Given recent results we would avoid Coca-Cola Enterprises at least until net income does start ticking up.
Tiger Global initiated a position of 1.4 million shares of Qualcomm (QCOM) during the second quarter of 2013. Qualcomm's trailing P/E is also 18, but that company's financial performance has been considerably better with sales and earnings rising about 30% from their levels a year ago. Wall Street analysts believe that at least some of this growth will continue, and as a result the forward earnings multiple is 14 and the five-year PEG ratio is 0.9. We would be interested in taking a closer look at the company to see if these projections sound about right.
Transdigm Group (TDG), the $7.3 billion market cap aerospace components company, was another of the fund's new picks with the filing disclosing ownership of 530,000 shares. Due to an increase in SGA expenses, Transdigm's earnings decreased by 17% in its most recent quarter compared to the same period in the previous fiscal year despite a rise in revenue. As with Coca-Cola Enterprises, however, markets believe this is a temporary setback for the company and so even after a small decline in the stock price over the last year Transdigm is valued at a forward P/E of 18.
The investment team also liked Avis Budget Group (CAR), buying 1.3 million shares of the stock. Avis Budget is very highly leveraged, which contributes to the stock's beta of 2.8. Analysts consider it to be a "growth at a reasonable price" opportunity, believing that earnings per share are on track for a five-year PEG ratio well below 1. A decent number of market players are bearish on Avis Budget, however, and so 12% of the float is held short. We'd be interested in comparing the company to its peers such as Hertz.
Rounding out our list of Tiger Global's new single-stock positions is $1.3 billion market cap specialty drugstore Vitamin Shoppe (VSI). Vitamin Shoppe is another popular short target, even after falling 21% in the last year against a rising market. Shorts are likely focusing on the fact that the retailer still looks a bit pricey, with a trailing P/E of 20, though we would warn that the company recorded double-digit growth rates on both top and bottom lines last quarter compared to the second quarter of 2012, and as such might actually be worth watching for further results.