This article originally appeared on Finbox.io.
Finding Stocks That Money Managers Own
February 14th is a beautiful day not only because it's Valentines Day but because it's also exactly 45 days after the Q4 calendar date. Why's that important?
It is important because institutional investors who manage over $100 million in assets must submit a form called the 13F-HR to the SEC within 45 days after each quarter date. It is also one of the better-kept secrets in investing. In the Form 13F, managers have to disclose their holdings giving intelligent observers a sneak peek into their strategy and investments.
It is important to note that these filings represent positions held as of December 31st and not necessarily reflective of a fund’s current stock holdings. However, analyzing thousands of stocks listed on U.S. exchanges is likely impossible for smaller investors. That’s why it is still helpful to leverage the resources from distinguished money managers in order to help narrow down a watch-list.
The Ideas Page at finbox.io tracks over 300 portfolios from illustrious managers like Warren Buffett, Ken Griffin, Carl Icahn and more. I searched through these portfolios to find stocks that:
- are being bought by more than one money manager, and
- are trading below their intrinsic value.
For number (1), finbox.io compares the two most recent 13F filings for a given asset manager to find stock holdings that have increased from the previous quarter.
For number (2), I determined which stocks are trading below their intrinsic value by using the finbox.io Fair Value estimate. This estimate is derived by applying valuation and risk models like discounted cash flow analysis, dividend discount model, earnings power value and more.
I also wanted to blend in some indication of which stocks might be ready to make a move up soon because they're popular with Wall Street analysts. Therefore I calculated an average using the finbox.io fair value upside and analyst upside to create a blended upside which I then used to rank the most undervalued holdings.
Here are the 10 most undervalued stocks that top money managers are buying.
Undervalued Stocks Fund Managers Are Buying: Parsley Energy Inc
Parsley Energy Inc PE engages in the acquisition, development, production, exploration, and sale of crude oil and natural gas properties in the Permian Basin in West Texas and Southeastern New Mexico.
| Money Manager | Purchased ($mil) | % Of Portfolio |
|---|---|---|
| Andreas Halvorsen | $301.6 | 3.3% |
| Leon Cooperman | $43.7 | 2.0% |
Andreas Halvorsen is the investor leading Viking Global which manages over $30 billion in assets. His firm's latest 13F filing revealed that he added $301.6 million worth of Parsley Energy shares over the quarter.
Leon Cooperman also added $43.7 million to his position.
Source: finbox.io
Shares of the company are down -6.8% over the last three months. The stock last traded at $23.53 as of Thursday morning and six separate valuation analyses imply that there is 24.0% upside relative to its current trading price. Wall Steet's more bullish on the stock's potential upside with an average price target of $38.30 per share.
Undervalued Stocks Fund Managers Are Buying: Walgreens Boots Alliance Inc
Walgreens Boots Alliance Inc WBA operates as a pharmacy-led health and well-being company.
| Money Manager | Purchased ($mil) | % Of Portfolio |
|---|---|---|
| Ray Dalio | $20.6 | 0.2% |
| Larry Robbins | $492.4 | 2.9% |
Larry Robbins is the investor behind Glenview Capital Management which manages more than $17 billion. Glenview’s most recent 13F filing highlighted that Robbins added a huge stake of $492.4 million to his Walgreens position. This brings the firms total holdings to $496 million or 2.9% of the portfolio.
Similarly, Ray Dalio added $20.6 million.
Source: finbox.io
Shares of Walgreens Boots Alliance Inc are down -3.9% over the last three months and finbox.io's fair value estimate of $95.00 per share calculated from ten cash flow models imply 39.0% upside. The average price target from 23 Wall Street analysts of $86.13 per share similarly imply upside.
Undervalued Stocks Fund Managers Are Buying: First Data Corp
First Data Corp FDC provides electronic commerce solutions for merchants, financial institutions, and card issuers worldwide.
| Money Manager | Purchased ($mil) | % Of Portfolio |
|---|---|---|
| Larry Robbins | $175.5 | 2.7% |
| Barry Rosenstein | $75.8 | 6.5% |
Barry Rosenstein of Jana Partners added $75.8 million of First Data Corp shares bringing his total to $244.0 million or 6.3% of Jana’s portfolio.
Larry Robbins added $175.5 million worth of stock in the fourth quarter bringing his total position to $459.1 million.
Source: finbox.io
First Data Corp's stock currently trades at $15.77 per share as of Thursday morning, down -5.4% over the last three months. Finbox.io's nine valuation analyses suggest that shares could increase 25.3% going forward.
Undervalued Stocks Fund Managers Are Buying: CVS Health Corp
CVS Health Corp CVS provides integrated pharmacy health care services as well as general retail services.
| Money Manager | Purchased ($mil) | % Of Portfolio |
|---|---|---|
| Ray Dalio | $30.5 | 0.3% |
| Larry Robbins | $395.3 | 2.9% |
Ray Dalio is the billionaire investor that founded Bridgewater, one of the largest hedge funds on Wall Street. Through his firm, he purchased a new $30.5 million stake in CVS Health Corp.
Furthermore, Larry Robbins also purchased $395.3 million worth of shares in the company. It appears that he was quite active in the fourth quarter!
Source: finbox.io
The company's stock is relatively flat over the prior three months. But the stock price could end up trading 28.0% higher in 2018 based on CVS Health Corp's future cash flow projections.
Undervalued Stocks Fund Managers Are Buying: Broadcom Ltd
Broadcom Ltd AVGO designs and develops a range of semiconductor devices worldwide.
| Money Manager | Purchased ($mil) | % Of Portfolio |
|---|---|---|
| Ken Griffin | $683.7 | 0.4% |
| Andreas Halvorsen | $617.5 | 3.9% |
Ken Griffin is the investor behind Chicago based Citadel Advisors. He's now the 36th richest American with a net worth that increased by over $1 billion since last year. What will likely help Griffin continue moving up the ranks is his most recent $683.7 million addition to Citadel's Broadcom position.
Andreas Halvorsen also reported new Broadcom purchases of $617.5 million.
Source: finbox.io
Broadcom Ltd's stock currently trades at $246.80 per share as of February 15th, down -6.8% over the last three months. On a fundamental basis, the company's stock is trading at a 17.2% discount to finbox.io's intrinsic value estimate.
It is important to note that Broadcom made a proposal to acquire QUALCOMM Inc QCOM for approximately $110 billion on November 6th, 2017. As of February 13th, Broadcom notified Qualcomm of its intention to nominate 6 new board members at Qualcomm’s 2018 annual meeting which is to be scheduled on March 6th. If elected, these six nominees would constitute a majority of Qualcomm’s 11-person board.
Undervalued Stocks Fund Managers Are Buying: Comcast Corporation
Comcast Corporation CMCSA operates as a media and technology company worldwide.
| Money Manager | Purchased ($mil) | % Of Portfolio |
|---|---|---|
| Steven Cohen | $235.5 | 1.4% |
| Ken Griffin | $738.1 | 0.7% |
| Barry Rosenstein | $85.4 | 2.3% |
Steven Cohen has an estimated worth of $13 billion and is the investor behind Point72 Asset Management. He is one of the more controversial money managers that you'll find but investing morality aside, you cannot deny his superior returns.
Cohen's latest 13F filing revealed that he added $235.5 million worth of Comcast shares over the quarter. At 1.4% of the entire portfolio, this is now his 8th largest equity position.
Two other fund managers added to their Comcast stakes including Ken Griffin and Barry Rosenstein.
Source: finbox.io
Shares of the company are up 6.1% over the last three months. The stock last traded at $39.41 as of Thursday and eleven separate valuation analyses imply that there is 6.0% upside relative to its current trading price. However, the consensus Wall Street price-target of $49.07 per share implies nearly 25.0% upside.
Undervalued Stocks Fund Managers Are Buying: Facebook, Inc.
As if this social media company requires an introduction,
Facebook, Inc. FB provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide.
| Money Manager | Purchased ($mil) | % Of Portfolio |
|---|---|---|
| David Tepper | $393.4 | 9.3% |
| Chase Coleman | $108.7 | 3.5% |
| Ken Griffin | $1,137.7 | 2.0% |
| Barry Rosenstein | $83.6 | 2.2% |
| James Dondero | $10.3 | 1.5% |
| Scott Ferguson | $201.2 | 9.7% |
A total of six hedge fund managers bought share of Facebook in Q4'17.
Forbes listed David Tepper as one of the 25 highest-earning hedge fund managers in 2017. He is the founder and president of Appaloosa Management, a global hedge fund based in Short Hills, New Jersey. The hedge fund added $393.4 million worth of Facebook stock in Q4.
Chase Coleman as an estimated worth of $2.2 billion and is the investor behind Tiger Global Management. Tiger Global manages $20 billion of assets and has a long record of delivering fantastic returns. The hedge fund revealed that it purchased more than $100 million worth of Facebook shares in Q4.
Scott Ferguson, a protégé of Pershing Square Capital Management's Bill Ackman, also purchased shares of Facebook in the fourth quarter. This position alone now represents nearly 10% of Sachem Head Capital Management's portfolio.
Other notable investors buying Facebook stock include James Dondero, Barry Rosenstein and Ken Griffin.
Source: finbox.io
Shares of Facebook, Inc. are roughly flat over the last three months. Finbox.io's fair value estimate of $187.49 per share calculated from seven cash flow models implies only 4.0% margin of safety. However, the average price target from 42 Wall Street analysts of $222.81 per share implies 24.1% upside.
Undervalued Stocks Fund Managers Are Buying: Centurylink Inc
Centurylink Inc CTL provides various communication services to residential, business, wholesale, and governmental customers in the United States.
| Money Manager | Purchased ($mil) | % Of Portfolio |
|---|---|---|
| John Paulson | $33.4 | 0.8% |
| Prem Watsa | $23.8 | 1.7% |
| Jeremy Grantham | $65.5 | 0.8% |
| Mark Rachesky | $4.2 | 0.2% |
John Paulson is best known for his 2007 bet against the U.S. housing market where he reportedly earned over $4 billion personally on one trade. Paulson purchased a new position in Centurylink worth $33.4 million in the fourth quarter.
Other relatively small, but notable purchases in Q4'17 came from Prem Watsa, Jeremy Grantham and Mark Rachesky.
Source: finbox.io
Centurylink Inc's stock last traded at $19.30 per share as of Thursday morning, up 18.9% over the last three months. Finbox.io's four valuation analyses suggest that shares could increase another 7.1% going forward.
Undervalued Stocks Fund Managers Are Buying: Apple Inc.
Another company that needs no introduction, Apple Inc. AAPL sells mobile devices and personal computers to consumers and businesses worldwide.
| Money Manager | Purchased ($mil) | % Of Portfolio |
|---|---|---|
| Warren Buffett | $5,286.9 | 14.7% |
| David Tepper | $546.1 | 7.4% |
| Louis Bacon | $152.3 | 3.8% |
Warren Buffett is considered one of the best investors in the world and has a total net worth of over $80 billion. Through Berkshire Hathaway, Buffett makes long-term investments as illustrated by the portfolio's low QoQ turnover rate. As a result, it is notable when Buffett enters into a new position or adds to a position like he has with Apple. Berkshire Hathaway's most recent 13F revealed a huge $5.3 billion purchase of Apple in Q4'17. The stock now represents almost 15% of Buffett's portfolio.
David Tepper and Louis Bacon also reported Apple purchases of $546.1 million and $152.3 million, respectively.
Source: finbox.io
Shares of Apple are trading -1.0% lower over the prior three months. However, Wall Street is particularly bullish on the company. The average price target of $192.43 calculated from 35 analysts suggest a 15.0% margin of safety.
Undervalued Stocks Fund Managers Are Buying: Time Warner Inc
Time Warner Inc TWX operates as a media and entertainment company in the United States and internationally. AT&T Inc. T originally entered into an agreement to acquire Time Warner for $82.9 billion on October 22nd, 2016. The proposed transaction continues to run into antitrust hurdles and has a trial scheduled to start on March 19th.
| Money Manager | Purchased ($mil) | % Of Portfolio |
|---|---|---|
| Seth Klarman | $740.9 | 7.6% |
| David Einhorn | $60.8 | 1.3% |
| Jeremy Grantham | $168.8 | 1.9% |
| Andreas Halvorsen | $420.4 | 2.6% |
| Daniel Loeb | $297.3 | 4.1% |
| Scott Ferguson | $243.8 | 11.7% |
Seth Klarman, via The Baupost Group, purchased a new $740.9 million position in Time Warner in Q4'17 (7.6% of his firm's portfolio). Klarman, along with Warren Buffett, is regarded as one of the most successful value investors in the world.
Five other hedge fund managers added to their Time Warner stake including David Einhorn, Jeremy Grantham, Andreas Halvorsen, Daniel Loeb and Scott Ferguson.
Source: finbox.io
Time Warner Inc's stock trades at $94.49 per share, up 8.2% over the last three months. On a fundamental basis, the company's stock is trading at a slight premium to finbox.io's intrinsic value estimate. However, Wall Street's average price target of $105.41 per share implies 12% upside (slightly below the deal value of $107.50 per share).
These fund managers obviously expect the AT&T merger to succeed.
10 Most Undervalued Stocks Fund Managers Are Buying
In conclusion, the table below ranks all ten stocks by their blended upside.
| Ticker | Name | Upside (finbox.io) | Upside (Analyst Target) | Blend Upside |
|---|---|---|---|---|
| PE | Parsley Energy Inc | 24.0% | 63.0% | 43.5% |
| WBA | Walgreens Boots Alliance Inc | 39.0% | 26.0% | 32.5% |
| FDC | First Data Corp | 25.0% | 34.0% | 29.5% |
| CVS | CVS Health Corp | 28.0% | 27.0% | 27.5% |
| AVGO | Broadcom Ltd | 17.0% | 28.0% | 22.5% |
| CMCSA | Comcast Corporation | 6.0% | 24.0% | 15.0% |
| FB | Facebook, Inc. | 4.0% | 24.0% | 14.0% |
| CTL | Centurylink Inc | 7.0% | 10.0% | 8.5% |
| AAPL | Apple Inc. | -1.0% | 15.0% | 7.0% |
| TWX | Time Warner Inc | -3.0% | 12.0% | 4.5% |
There’s a reason why investors track holdings of top institutional fund managers to get inspiration for their portfolios, it works. If you’re not currently using 13F forms to find attractive stocks, chances are you’re leaving money on the table.
This list will be updated again when new 13F filings are released in May.
Author: Matt Hogan
Expertise: Valuation, financial statement analysis
Matt Hogan is a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock.
His work is frequently published at InvestorPlace, Benzinga, ValueWalk, AAII, Barron's, Seeking Alpha and investing.com.
Matt can be reached at matt@finbox.io.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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