Billionaire Michael Price’s Cheap Stock Picks
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We track quarterly 13F filings from hundreds of hedge funds and other notable investors as part of our work researching investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year. We also like to screen filings from individual funds according to a number of criteria, including low earnings multiples.
By looking for these “cheap” stocks, we can help investors identify targets for further research which may be good value stocks. Read on for our quick take on the five largest holdings in billionaire Michael Price’s MFP Investors’ portfolio as of the end of March with both trailing and forward P/Es of 13 or lower (or see the full list of Price's stock picks).
The fund reported a position of 1.8 million shares in Intel (NASDAQ: INTC) in the filing. Intel is valued at 12 times earnings, whether we consider its trailing results or analyst consensus for 2014. If the company does manage to keep its earnings stable over the next year and a half, that would be an improvement on its recent growth rates: revenue slipped last quarter compared to the first quarter of 2012, pushing net income down 25%. At current prices and dividend levels, Intel’s annual yield is 3.7% so it is a potential income stock as well.
Price was one of the fund managers getting into Hess (NYSE: HES) between January and March, as the oil and gas company plans to spin out its non-upstream operations in order to become more focused on exploration and production activities. It currently trades at 11 times forward earnings estimates. That represents a premium to some larger oil and gas companies, but is certainly low in absolute terms, and the breakup of Hess does have some potential to create shareholder value as management becomes better able to focus on core operations.
MFP trimmed its stake in Symetra Financial (NYSE: SYA), a $2.2 billion market cap life insurance company, by 17% during the first quarter of the year but still closed March with 1.5 million shares in its portfolio. Symetra is valued at a considerable discount to the book value of its equity (the P/B ratio is 0.6) and its earnings multiples are low as well. However, the company’s margins have been shrinking and as a result, earnings declined by over 10% in its most recent quarter compared to the same period in the previous year despite higher sales.
Kaiser Aluminum (NASDAQ: KALU) was another of Price’s cheap stock picks with the filing disclosing ownership of a little over 300,000 shares. Earnings have been up here, going by recent reports, though revenue has been down moderately and so we’d be concerned that these improvements on the bottom line will not be sustainable (as they rely entirely on fatter margins). With Wall Street analysts forecasting a small decline in net income next year, the stock trades at 13 times forward earnings estimates. The stock is about flat year to date, underperforming the broader market.
According to the 13F, MFP had about 590,000 shares of Pfizer (NYSE: PFE) in its portfolio. Pfizer carries trailing and forward P/Es of 13 and 12, respectively; the company has been spinning out assets in the past few years, from its child nutrition business to its animal health operations. This has reduced revenue, but earnings grew 53% in the first quarter of 2013 versus a year earlier and it’s possible that a more focused company could continue to do well. Fisher Asset Management, managed by billionaire Ken Fisher, had Pfizer as its top single-stock holding in its 13F for the first quarter (find Fisher's favorite stocks).
Pfizer seems like it is worthy of further research, though we would want to check that its declining sales can be explained by its divestments rather than product related factors as well. We can also see considerable opportunity at Hess, though in that case, the question is whether it might be better to buy a larger oil and gas company at a discounted earnings multiple rather than to rely on efficiencies from Hess’ spin-out.
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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 recommends Intel. The Motley Fool owns shares of Intel. 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!