Get A Better Price On These Stocks Than the Pros
StreetAuthority | May 03, 2012 06:37AM ET
These are heady times for the nation's top hedge fund managers. I've conducted a deep review of the top 20 holdings of the nation's most famous fund managers, and the relative gains or losses since those holdings were acquired. The recent performance has been remarkable: More than 85% of their recent trades (according to recent 13-F filings) are currently profitable.
Their stock-picking prowess is surely in evidence, though it doesn't hurt that the Dow Jones Industrial Average (DJIA) has risen for seven straight months. Yet even these top managers make mistakes. Almost every one of them is holding a dud in their portfolio. The holding has slumped in value since they bought in, implying they were either flat wrong, or just premature. These managers are expected to update their holdings with fresh 13-F filings in the next two weeks, so it will be interesting to see whether they've doubled down on these laggards, or are cutting their losses.
For the rest of us, these laggards may point the way to value. Having the chance to buy stocks that are now quite cheaper could be a way to piggyback on these pros without overpaying. Here's a short list of losing picks among top fund managers...
Running through this list, a clear theme emerges. Investments in natural resource stocks have proven ill-timed. Newmont Mining (NYSE: NEM) and NovaGold Resources (NYSE: NR), for example, have been slumping along with other gold miners, though as my colleague Steve Orlowski recently noted those fund managers would be unwise to bail on them now.
In a similar vein, Bridgewater Associates' Ray Dalio, arguably the hottest fund manager on the planet right now, has made a rare misstep with Peabody Energy (NYSE: BTU). He failed to foresee the slump in demand for coal. But at least for this coal-miner, as I recently wrote, better days may lie ahead.
For this bank, timing is everything
Roughly 15 months ago, the U.S. economy appeared to be turning a corner.Few suspected the European financial problems would evolve into a full-blown crisis. With the clouds parting, Fairholme Capital's Bruce Berkowitz and Pershing Square's Bill Ackman loaded up on shares of Citigroup (NYSE: C) while it traded in the low to upper $40s. But a few months later, the economic skies grew cloudy again and this bank stock got absolutely crushed, briefly falling below $25.
Shares have retraced about half of that loss, and at this point it looks like a solid value play, trading well below tangible book value. If Ackman and Berkowitz can hang on, then they may still see their investments move back up above the prices they paid. By my math, Citigroup could hit $50 or even $60 within a few years. (That's why I hold it in my $100,000 Real Money Portfolio.)
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Go with the best
If you like to follow the moves of leading hedge fund managers, then you should always keep an eye on the Baupost Group's Seth Klarman. I noted his impressive long-term track record in this article -- and more recently, my colleague Andy Obermuller took a fresh look at his most recent holdings.
Tracking Klarman's moves can be especially profitable, as he tends to focus on off-the-radar stocks that often slump even further before finally gaining traction. And it's happening again. Right now, several of his picks are underwater. But if history is any guide, Klarman is not mistaken with these picks, just premature.
Klarman is currently carrying a 15% to 20% loss in Novagold Resources, Allied Nevada Gold (NYSE: ANV) and Hewlett-Packard (NYSE: HPQ). Watch out for his next moves in these holdings as the next round of 13-F filings are submitted in a few weeks.
Risks to Consider: These pros may have decided to reduce or eliminate their exposure to these lagging picks in the first quarter, so keep an eye out for the 13-F filings before buying.
Investors often tend to load up on stocks that the pros are buying, often paying more for shares than the investment gurus did. It's wise to track their moves, but even wiser to buy stocks for a price lower than what they paid. Any of the stocks I mention above are good starting points for further research.
by David Sterman
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