Billionaire Louis Bacon’s Latest Stock Picks
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Louis Bacon manages about $15 billion at Moore Capital Management, and his net worth has been estimated at $1.5 billion. According to Moore’s 13F for the third quarter of the year, Bacon and his team moved heavily into financials between July and September- its five largest long stock positions at the end of the quarter were all in financials and had all been initiated in the last three months. Read on for our quick take on Bacon’s favorite stocks and see what other stocks he liked.
The largest of these positions according to the 13F was Moore’s 5.3 million shares of Citigroup (NYSE: C). Citi’s stock price is up 40% in the last year, but the climb in the bank’s valuation relative to the book value of its equity hasn’t been as great: the P/B is still at 0.6. There are a number of factors going into this: exposure to Europe, the perception that Citi is “too big” in the sense of having too many disparate businesses, and the fact that that revenue fell 36% last quarter versus a year earlier, pulling earnings down at an even faster rate. The book value and the forward P/E of 8 indicate that it is a good deal anyway, and we’re interested in the stock. 93 hedge funds and other notable investors owned Citi at the end of September, placing it on our list of the most popular stocks among hedge funds.
JPMorgan Chase (NYSE: JPM) was another of Moore’s top picks as the fund owned 3.8 million shares of that bank. JPMorgan Chase is generally considered to be a more focused and safe bank than Citi, and the stock has rallied nicely from the London Whale losses earlier this year. Earnings have been up strongly, but in terms of valuation we think that it still looks cheap. JPMorgan Chase trades at 9 times trailing earnings and 8 times forward earnings estimates, not to mention a substantial discount to the bank’s book value (the P/B is 0.8). Billionaire Ken Fisher’s Fisher Asset Management more than doubled its stake in JPMorgan Chase during the third quarter (see more stock picks from Fisher Asset Management).
The fund also liked growing hedge fund favorite American International Group (NYSE: AIG). The insurer is yet another stock trading at a low P/B ratio (0.5 in this case) and a reasonable forward P/E (9x). Again, we think that we’d recommend AIG as a value play- it probably shouldn’t be trading at book value as we are skeptical that the company is appropriately valuing its assets, but we think that we should see that ratio creeping up in the coming months and likely doing so through an increase in the stock price.
Moore reported owning 3.1 million shares of U.S. Bancorp (NYSE: USB), a large Midwest-focused bank. It’s a bit more expensive in terms of its financials than the other top picks we’ve discussed. It actually trades at 1.8 times the book value of its equity and at 11 times consensus earnings for 2013. The case for buying in at U.S. Bancorp likely depends on its steady growth in earnings per share, as EPS has increased on a q/q basis each of the three quarters of this year. It’s less of a buy than these other companies from our perspective.
The fund’s 2 million shares of Wells Fargo & Company (NYSE: WFC) made that the fifth largest long stock position reported in the filing. Wells Fargo, like U.S. Bancorp, is generally thought of a safer and more stable bank. It too trades at a premium to the book value of its equity, but a lower one at a P/B ratio of 1.2. Its revenue and earnings grew at double-digit rates in the third quarter compared to the same period in 2011, and its forward P/E is only 9. We think that it’s a better value than U.S. Bancorp and is at least competitive with the cheaper finance and insurance stocks as well.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in C. The Motley Fool owns shares of American International Group, Citigroup Inc , JPMorgan Chase & Co., and Wells Fargo & Company and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend American International Group and Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!