Billionaire Ken Griffin’s Cheap Stock Picks
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There are a number of ways for investors to make use of the information in quarterly 13F filings, despite the fact that the information is a bit behind by the time it is released. For one, we have found that the most popular small-cap stocks among hedge funds generate an average excess return of 18 percentage points per year, and think that other strategies are possible as well.
We can also screen individual managers’ top picks according to a number of criteria, including low P/E multiples, as a source of initial investment ideas. In this article we’ll take a look at some of these “cheap” picks from billionaire Ken Griffin’s Citadel Investment Group. Read on for our quick take on Citadel’s five largest holdings in stocks with both trailing and forward earnings multiples of 14 or lower (also see the full list of the fund's stock picks).
The top five
Griffin increased his holdings of Allstate (NYSE: ALL) by 52% between January and March to a total of 6.5 million shares. While the insurance company is actually priced at a small premium to the book value of its equity- the P/B ratio is 1.1- it has managed to generate plenty of income from these assets, and as a result its low earnings multiples (for example, the trailing P/E is 10) place the stock in value territory. We would note that in the first quarter of 2013 Allstate’s net income did fall moderately versus a year earlier.
Midwestern regional bank U.S. Bancorp (NYSE: USB) was another of Citadel’s cheap stock picks, as the filing disclosed ownership of 8.6 million shares. Wall Street analysts are looking for low earnings growth at U.S. Bancorp, as shown by the fact that its trailing and forward P/Es are 12 and 11 respectively, and in fact recent financial results are showing exactly that. We’d like to see somewhat higher growth rates, even at that pricing, as many other regional banks are valued cheaply potentially making U.S. Bancorp a less attractive stock than its peers.
The fund cut its stake in Apple (NASDAQ: AAPL) by 38%, but still owned about 640,000 shares at the beginning of April, and as a result Apple remained among its 10 largest holdings by market value. Even with many funds selling out of Apple last quarter, the technology company regained its place as the most popular stock among hedge funds (find more of hedge funds' favorite stocks). Both the trailing and forward earnings multiples are in the 10 to 11 range, despite Apple’s large cash hoard, as markets generally expect further declines in the company’s earnings.
Griffin and his team reported a position of 2.7 million shares in United Technologies (NYSE: UTX) at the end of Q1. The industrial technology company, whose products include Otis elevators, Pratt & Whitney aircraft engines, and Sikorsky helicopters, trades at 14 times earnings regardless of whether we compare the $87 billion market cap to trailing earnings or consensus forecasts for 2014. Business is up, thanks in part to a recent acquisition, and we’d be interested in taking a closer look at the company- even low growth could make it a good value at this price.
Citadel more than tripled the size of its position in PNC Financial Services (NYSE: PNC) and owned 3.7 million shares according to the filing. PNC is another well liked bank among investors, with its P/B ratio also being slightly above 1. The trailing P/E is 13, even though recent results have been quite good; specifically, net income came in 26% higher last quarter than in the first quarter of 2012. We think that combination of earnings growth and fairly low pricing makes PNC a good candidate for value status.
Griffin has a number of at least somewhat interesting picks here. While Allstate and U.S. Bancorp have not been doing so great recently, they are at least cheap enough to be worth a look or watching for further results, and we’ve mentioned that PNC seems attractive. United Technologies would take some work to tease out the effects of acquisitions, but certainly the market seems to have low expectations for the company. As for Apple, the earnings multiples are certainly low, but we do have some concerns on the earnings front. It might best be placed on a watch list.
The big banks may be rushing to renew their focus on traditional banking, but well-run regional banks like PNC Financial are already there. PNC saw its share of hardships during the financial meltdown, but its management team thinks the bank is now back on track and ready to deliver for investors. Does this mean it's time to buy PNC? To help you figure that out, one of The Motley Fool's top banking analysts has authored a brand-new premium research report, delving into everything investors need to know about PNC today. To claim your copy, simply click here now for instant access.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in AAPL. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and PNC Financial Services. 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!