Hidden Stock Picks of 6 Super Hedge Fund Managers

by: NakedValue

Considering the amount of attention that the financial news spends on following the investment activity of famous hedge fund managers, it is hard to believe that any positions could fall under the radar, but it happens. Maybe certain stocks are considered boring or the position size too minor. But for the intelligent investor, these under-the-radar holdings could provide some of the best opportunities.

Here are some "hidden" stock picks from successful hedge fund managers:

Eddie Lampert, [ESL Investments; Sears Holding]
Big Lots Inc (NYSE:BIG)
According to Eddie Lampert's latest disclosures through his RBS Partners investment vehicle, the famous fund manager reported a new 1,300,105 share position in Big Lots Inc. The discount retailer recently concluded an unsuccessful auction of itself which it initiated in February 2011 after they were approached by private equity funds. The retailer's stock price surged around 35% following management's February announcement. The stock traded as high as $44 before falling back. Following news on May 19 that the company would remain public because of disappointing buyout offers, the stock price dropped to pre-auction announcement levels.

Eddie Lampert has a reputation as the next great value investor, but unlike Warren Buffett, Lampert is not afraid to invest in retail companies. Lampert's control stake in Sears Holdings (NASDAQ:SHLD), as well as his investment in Gap Inc (NYSE:GPS), should pique the interest of Big Lot shareholders. While Lampert's BIG stake may have been a risk arbitrage play, his holdings of late have been longer term in nature. In addition, with a concentrated portfolio of 10 companies, regardless of the position size, its significant that Lampert invested in Big Lots.

We previously highlighted BIG as an interesting stock because of reasonable valuations and a potential near term catalyst related to the buyout talk. While the stock price declined sharply following their failed auction, based on the valuation of Trian Group's failed buyout offer for Family Dollar, Big Lots could be worth around $59 per share.

David Tepper, Appaloosa Management
David Tepper made a name for himself by buying out of favor stocks. Most recently, his fund made a windfall for investors by purchasing distressed financial stocks in March 2009. But Appaloosa Management's new 200,000 share position in Apple Inc is not a distressed company. The purchase will surprise some hedge fund watchers, even though the popular electronics manufacturer is one of the most popular hedge fund investments.

A natural tendency is to assume that stocks of popular companies are overpriced, but Apple Inc may be a sterling exception. The ubiquitous and trendy Apple products dominate every segment they operate in, but strangely, the company's valuations multiples are shockingly low. Despite profit margins of 22% and return on assets of 21%, the company has a trailing P/E of 15.9 and a forward P/E of 11.8. These measures don't adjust for the company's massive cash and investments that contribute little percentage returns to the bottom line. If you exclude this under productive asset, the company's trailing P/E is closer to 12.8 and the forward P/E is around 9.54. Even contrarian investors trained to ignore popular stocks should take a closer look.

Daniel Loeb, Third Point LLC
During the most recent reported quarter, Daniel Loeb's Third Point LLC reported a new 1,500,000 share position in Ebay Inc. While it's been a long time since eBay Inc was one of the technology world's hottest stocks, the online auction site is still a formidable player on the internet. In 2010, the company had $9.15 billion in sales. Despite the perception of a mature business, eBay has still managed to grow revenues. EBAY has trailing P/E of 22.8 and forward P/E of 14.5.

Like Eddie Lampert, Daniel Loeb also initiated a new position in Big Lots Inc this past quarter. Third Point LLC has a 500,000 share position in the discount retailer.

John Paulson, Paulson & Co
Hewlett Packard (NYSE:HPQ)

It is hard to imagine Paulson & Co's massive new 25,000,000 share position in Hewlett Packard flying under the radar, but the media seems content in viewing him as the guy who was bearish of the housing market and is now bullish on gold. In addition, Paulson's new stake in Hewlett-Packard was quickly overshadowed by the company's leaked earnings. While the media's type casting of Paulson as a housing bear and gold bull make for easier reporting, investors should pay attention to Paulson & Co's latest position.

The technology stalwart has suffered in recent years because of a weak economy, unfavorable market trends and overwhelming market pressure from Apple Inc but it still has an undeniably strong business with global reach and cheap valuations. HPQ has a trailing P/E of 9.18 and a forward P/E of 6.7. With those valuations, investors should be satisfied even if the company's businesses continue to stagnate, but the biggest risks to investors of HPQ is the desperation that could lead management to make overpriced acquisitions. As we discussed in this previous article, HPQ's addiction to expensive technology acquisitions could be a rude awakening to investors that view HPQ as a value stock.

Chase Coleman, Tiger Global Management
Netflix Inc (NASDAQ:NFLX)
Tiger Global Management made a name for itself as a savvy global macro oriented investor, but that did not stop the fund from initiating a new 832,000 share position in Netflix Inc. The mail and online content rental service has been one the market's most popular and divisive stocks. While bulls love the growth potential and high return on capital, bears are fixated on the high valuation multiples. Tiger Global is considered one of the world's top hedge funds, and considering that the fund is buying this well known company AFTER it surged from around $100 to $240 per share in the last year, investors should take note.

Youku.com Inc (NYSE:YOKU)
Tiger Global has shown a proclivity for international investments so their new 1,133,788 share position in Youku.com should not surprise investors. The stunningly pricey Chinese video website has tantalizing growth opportunities as the YouTube of China. The $5 billion market capitalization company had $58.65 million in revenues during the year ending December 31, 2010. China's reputation for lax copyright enforcement may actually be a tailwind for this company's online content growth in the near term. Perhaps most surprising is that Davis Selected Advisers was among the company's shareholders. Davis Funds are a well known family of value investing vehicles.

Bill Ackman, Pershing Square
Alexander & Baldwin (NYSE:ALEX)
Bill Ackman was always a respected name, but his investment in General Growth Properties (NYSE:GGP) catapulted him into the upper echelon of hedge fund managers. Considering his status and his concentrated investment portfolio, its surprising that any of his positions should fall below the radar, but that seems to be the case with Pershing's 3,561,943 share stake in Alexander & Baldwin.

The Hawaiian conglomerate's stock price jumped from $40 to $55 after Pershing Square disclosed their position, but the stock has slumped in recent weeks with little new developments. While consensus still seems to suggest that Ackman simply sees the company as a sum of the parts story, we previously wrote that ALEX could be a Pershing Square bet on inflation. The management is ingrained and Hawaiian companies have shown a relative intolerance to outside meddling (especially from mainlanders), but if anyone can stir the pot, it's Bill Ackman.

Disclosure: I am long BIG shares, and may initiate a long position in AAPL, HPQ, ALEX over the next 72 hours.