7 Value Stocks Fund Managers Are Betting Big On

Includes: ACAS, AIG, CLF, CZZ, F, MGM, TRW
by: Insider Monkey

By Matt Doiron

Value stocks are a bargain bin. Investors know that, on average, these lower-priced stocks tend to be better investments than hyped companies commanding high valuations, but each of these stocks carries a low multiple for a reason: its value is not obvious to the rest of the market. One way to try to determine which value stocks are good buys is to study positions taken by hedge funds and pick out stocks that either have large hedge fund positions, or famous investors, or a number of different funds behind them. Using data from Fidelity and Insider Monkey, here are seven stocks trading at less than 5 times trailing twelve months earnings and which had at least one 13F filer report a $100 million or greater position at the end of March 2012:


P/E (trailing earnings)

Largest Fund Position


MGM Resorts (MGM)


$513 million

Ford Motor (F)


$120 million

American International Group (AIG)


$289 million

American Capital (ACAS)


$171 million

Cliffs Natural Resources (CLF)


$105 million

TRW Automotive Holdings (TRW)


$132 million

Cosan (CZZ)


$470 million

Leading our list of apparent bargains is MGM Resorts. MGM is expected to lose money this year and next year, which has brought the stock down 38% from a year ago. The five-year PEG ratio is -1.5, which indicates that sell-side analysts do not see a turnaround coming even in the medium-term future. Billionaire John Paulson's Paulson & Co. reported owning 37.6 million shares of MGM at the end of the first quarter, which made him the top hedge fund holder of the stock according to 13F filings (see more of Paulson's stock picks). Paulson has owned the stock at least since the end of 2010; though he has slightly reduced his position, it remains a large holding in his portfolio. We don't think this stock is a good buy until there are indications that the company has a path back to profitability.

We asked if Ford is a potential value opportunity last week. The global auto market has been struggling, with European sales down in particular, but Ford is at least generating positive earnings and carries a trailing P/E of 2 and a forward P/E of 6. Poor investor sentiment has driven it down 19% year to date. Highfields Capital Management, which is managed by Harvard Management alum Jonathon Jacobson (when Highfields raised $1.5 billion in 1998, one-third of that money came from the Harvard endowment), managed to initiate a 34.6 million share position in the first quarter of 2012. While Highfields is in the red on its initial investment, perhaps the fund was just early or has been increasing its position since then.

If investors are sour on Ford, they are just slightly less sour on AIG, the government-rescued insurer which is now above a $50 billion market capitalization after rallying 31% this year but still only trades at 3 times trailing earnings. Wall Street analysts expect its earnings to fall in the forward period, but its stock price is still nine times forward earnings per share. Glenview Capital, run by former Omega Advisors trader Larry Robbins, owned 9.4 million shares of the company at the end of March (find other favorite stocks from Glenview Capital). Robbins initiated the position last spring.

American Capital is a private equity, venture capital, and private debt investment group whose earnings are expected to decline in the near future- its forward P/E is a more common 11- but Wall Street analysts assure investors that the company is priced for growth with a 5-year PEG of 0.8. The top hedge fund holder of American Capital, according to 13F filings from March, was Fortress Investment Group and Paulson was also an investor. We reported earlier this month that Luxor Capital had also taken a large position in ACAS as well.

Risk averse investors can minimize their risk by buying small positions in each of these stocks. This will diversify their portfolio and may deliver above market returns over the long-run.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.