Billionaire Steve Cohen’s Cheap Stock Picks
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SAC Capital Advisors may (or may not) be in legal trouble, but billionaire Steve Cohen’s hedge fund is still a major market player whose moves get investors’ attention. We decided to go through SAC’s 13F filing for the third quarter of 2012 and see which of its top holdings passed a basic value screen; perhaps some of these cheap stocks that were in the fund’s portfolio at that time are still good buys today. Read on for our quick take on the five largest positions SAC had in stocks with trailing and forward P/E multiples of 12 or lower, and check out the full list of Cohen's stock picks.
One of SAC’s top stock picks was American International Group (NYSE: AIG), with the fund’s position increasing to 8.3 million shares at the end of the quarter, and it wasn’t alone on that point. AIG was such a hot name in the hedge fund community that it was the third most popular stock among hedge funds for the third quarter (see the full rankings) even though it hadn’t made the list at all three months earlier. AIG trades at about half the book value of its equity, and at 10 times analyst consensus for 2013. We think that it makes for a good value stock.
Apple (NASDAQ: AAPL) is another cheap stock that Cohen and his investment team liked, with SAC owning about 280,000 shares according to the 13F. Apple carries trailing and forward P/Es of 12 and 9, respectively, and a five-year PEG ratio of 0.5. The market seems confident that Apple won’t see any earnings growth over the next several years, while the sell-side is guessing that growth will continue at more or less the same rate. We’d put ourselves roughly in the middle; so, given where it’s trading, we think it’s a buy. Billionaire Ken Fisher’s Fisher Asset Management added shares during the quarter (find Ken Fisher's favorite stocks), and it had topped our list of hedge funds’ most popular stocks.
$50 billion market cap oil and gas company Suncor Energy (NYSE: SU) was another of SAC’s favorite stocks. Large oil companies tend to be trading cheaply, and Suncor is no exception with a trailing P/E of 10. This is particularly confusing in Suncor’s case as the company has a strong position in the booming Alberta oil sands and actually reported an increase in earnings (though not in revenue) last quarter compared to the third quarter of 2011, rare for a large energy company. We think that we’d like to take a closer look at the company to be more confident about that earnings growth, but at this point it looks attractive at current prices.
The fund also liked Superior Energy Services (NYSE: SPN), which provides equipment and services to oil and gas drillers (including for their offshore operations). Revenue and net income were much higher in the third quarter than a year earlier, yet the market apparently believes that there’s no future growth here, as the stock is valued at 9 times earnings after having dropped 22% in the last year. The sell-side expects at least some growth to continue, and the five-year PEG ratio is only 0.4. That’s enough to merit consideration, though we’d certainly research why the market is so negative on Superior’s prospects before buying.
Cohen was willing to buy, of all things, an iron ore and coal stock during the third quarter: SAC added heavily to its position in Cliffs Natural Resources (NYSE: CLF) and closed September with 2.7 million shares in its portfolio. Iron ore and metallurgical coal demand has been low, due to steel demand being low, which in turn has been brought about by macro concerns (the stock’s beta is 2.4). Revenue and earnings have plummeted, and even Wall Street analysts are forecasting lower net income in 2013. It’s still valued at 10 times consensus earnings for next year, and has upside if it can stabilize its business, but we think we’d avoid it for now.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in Apple. The Motley Fool owns shares of Apple and American International Group and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend Apple and American International Group. 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!