Billionaire Israel Englander’s Cheap Stock Picks
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Millennium Management was founded in 1989 and has since grown to $13 billion in assets under management. Founder Israel Englander has become a billionaire due to the fund’s ability to succeed even as its size has increased. We have gone through the fund’s recent 13F filings and picked out stocks whose valuations are cheap in relation to their earnings (see the full list of Millennium's top stock picks). While there’s often a good reason why the market is sour on value stocks, looking at low priced companies can be a good screen to find prospects for future research. Here are the five largest stock positions by market value in Millennium’s 13F portfolio which have trailing and forward price-to-earnings multiples of 12 or lower:
The fund’s position of about 870,000 shares in Occidental Petroleum (NYSE: OXY) made it one of the five largest 13F holdings by market value. Occidental, a $60 billion market cap oil and gas company, trades at 10 times earnings whether we consider its historical results or analyst consensus for 2013. The company reported a 22% decline in net income in its most recent quarter compared to the same period in 2011. Fellow billionaire David Shaw’s D.E. Shaw added shares of Occidental during the third quarter of 2012, closing September with 2.1 million shares in its portfolio (check out D.E. Shaw's favorite stocks). We think that we’d prefer to look at other large oil companies such as Exxon Mobil or BP.
Englander and his team cut their stake in Marathon Oil (NYSE: MRO) by 17% but still reported owning 2.2 million shares in the 13F. Marathon is another oil and gas company whose activities include exploration and production (including producing oil from the Alberta oil sands) as well as refining and marketing. It reported double-digit increases in both revenue and earnings for the third quarter over its numbers from Q3 2011, and is expected to continue growing next year. At a trailing P/E of 12, it is well priced if it can actually deliver that growth.
Freeport-McMoRan Copper & Gold (NYSE: FCX) was another of Millennium’s picks. The company may need to add “& Oil & Gas” to its name after its recent purchase of two oil and gas companies, which came at abnormally high premiums to where those stocks had been trading. Read our analysis of Freeport-McMoRan's move into oil and gas. The stock looks cheap in terms of multiples but we’re quite wary of buying as the deal doesn’t look that beneficial. M&A tends to destroy shareholder value anyway, and we’re worried that management will be less focused as a batch of operations dedicated to different commodities joins the company.
The fund added to its stake in electric and natural gas utility PPL Corporation (NYSE: PPL). PPL, which operates in the U.S. and U.K., pays a dividend yield of about 5% and has a beta of only 0.1. As a result it might be a good choice for income investors, or those looking to shield their portfolio from negative economic surprises. However, its revenue and earnings have been down and even with a forward P/E of 12 it’s probably wise to evaluate the company more closely as well as to consider other large utilities.
Englander also liked Capital One Financial (NYSE: COF), as Millennium more than tripled the size of its position in the company to just over 1 million shares. Capital One has good value characteristics- not only does it trade at 10 times trailing earnings, it is also priced at a discount to the book value of its equity with a P/B ratio of 0.9. Earnings were 45% higher in the third quarter than a year earlier, and while we’d expect that growth rate to slow dramatically even a small amount of improvement next year would leave the stock well undervalued.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. 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!