Long/Short Equity Hedge Fund’s ‘Fab Five’ for 2013

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In collaboration with MarketWatch, we at Insider Monkey have created the Billionaire Hedge Fund Index, which tracks the consensus stock picks of the world’s foremost hedge fund managers. In 2012 alone, our index returned 24.3%, outpacing the S&P 500 by 8%. More impressively, our small-cap strategy has historically beaten the market by 18% a year, proving that there are plenty of ways to generate outperformance if you know where to look (see how to use these market-beating strategies here).

With this in mind, it’s also important to analyze the stock picks of individual hedge funds by using their latest 13F filings with the SEC. Let’s take a look at one hedgie that has flown under the mainstream media’s radar for the most part—John Thaler’s JAT Capital Management. As detailed in our profile of Thaler’s fund, JAT is a long/short equity hedge fund based in New York City with a focus on the technology, media, and telecommunications sectors.

Taking a look at Thaler’s top five stock picks at the end of the fourth quarter, Equinix (NASDAQ: EQIX) is his No. 1 holding, accounting for roughly 13.5% of his equity portfolio. The hedge fund manager boosted his stake in this data center services company by a whopping 65% last quarter. Equinix has had a very impressive run over the past year, returning close to 60% in value, and TheStreet recently upgraded the stock from “hold” to “buy.” On the whole, Wall Street’s average price target on Equinix represents an upside of 15% from current levels, and the sell-side expects EPS growth of 40.2% next year. It’s easy to see why Thaler is bullish on this momentum play.

Liberty Media (NASDAQ: LMCA) and Disney (NYSE: DIS) are the hedgie’s second and third largest holdings, and together they comprise a little over 17% of his 13F capital. Thaler upped his stake in Disney by an astounding 2,854% last quarter, and cut his Liberty stake by about 10%, and both media giants represent intriguing investment opportunities for the remainder of 2013.

Since completing its Starz spinoff earlier this year, shares of Liberty Media have lost a little over 3%. Around this same time in mid-January, Liberty also boosted its stake in Sirius XM above 50%, and many analysts are predicting a separate spinoff of SIRI in the form of a Reverse Morris Trust. Moving forward, we’re encouraged by hedge funds’ conviction in Liberty, as the number of funds (of those we track) invested in this stock stood at 55 at the end of Q4—tops in the broadcasting industry.

Disney, meanwhile, saw 47 hedgies invested at the end of last quarter, and aside from Thaler and JAT Capital, top-tier names like Mason Hawkins, Ken Fisher and Stephen Mandel were all long (check out Mandel and Lone Pine Capital’s full equity portfolio). A key strength of Disney is its ability to grow inorganically, most notably through its acquisitions of Marvel Entertainment and Lucasfilm.

The sell-side expects Disney’s bottom line expansion to average 11-12% a year over the next half-decade—nearly twice what its annual rate has been over the past five years. Trading below 14 times forward earnings also indicates that value investors can still be pulled into this stock; ‘growth at a reasonable price’ (GARP) plays are some of the best out there.

Next up we have Ctrip.com (NASDAQ: CTRP), Thaler’s fourth largest holding. The hedge fund manager upped his stake in this Chinese online travel service provider. From a business standpoint, Ctrip compares closely to Expedia, though it actually trades at a 33% discount to its peer on a price-to-book basis. In layman’s terms, this company serves as another GARP play, as Ctrip sports a year-ahead expected EPS growth rate of 32%. Fellow fund managers Philippe Laffont and Andreas Halvorsen are also long, among others.

Google (NASDAQ: GOOG), lastly, rounds out this top five, and it has had the best 2013 of this bunch, returning a cool 13% year-to-date. Trading slightly off their all-time high north of $800, shares of Google are still cheap at 14.9 times forward earnings. Wall Street’s average price target for the tech giant, in fact, still indicates that a 5-6% upside is still expected from current levels. Google was the hedge fund world’s third favorite stock at the end of 2012; 126 of the 450 funds we track hold long positions, so there’s clear support from the smart money.


This article is written by Jake Mann and edited by Meena Krishnamsetty. Meena has a long position in GOOG. The Motley Fool recommends Ctrip.com International, Google, and Walt Disney. The Motley Fool owns shares of Ctrip.com International, Google, and Walt Disney. 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!

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