Taking a Cue From the Billionaires

 | Sep 06, 2012 | 9:30 AM EDT  | Comments
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At Insider Monkey, we track 13F SEC filings from many hedge funds and other large investors, including the investment activities of billionaires and their investment teams. For today's piece, we'll focus on the consumer sector: Within that space, here are the five largest new positions from billionaires.

First, Bill Ackman's Pershing Square initiated a position of about 22 million shares in Procter & Gamble (PG) -- which, according to the fund's 13F filing, made this the second-largest position in the fund's portfolio. Shares of the personal-products giant -- whose brands include Pantene, Gillette, Pampers and Duracell -- has low market exposure, with a beta of 0.3, and the company pays a 3.3% dividend. It has also reported solid year-over-year earnings growth in the last quarter. The stock, meanwhile, trades at 18x trailing earnings. While that may be a bit high, Wall Street analysts believe earnings will continue to grow -- and, on a forward basis, its price-to-earnings ratio is 16x. Given the dividend yield, this may be a fairly valued defensive pick.

The second-largest new addition was Renaissance Technologies' 1.6 million-share stake in Nike (NKE). Renaissance is a quantitative-analysis fund, and one of the most successful hedge funds in the market today. As for Nike itself, it has a more standard market exposure, with a beta of 0.9. Its margin fell last quarter vs. the prior year -- revenue rose 12%, but earnings dropped 8%. Nike is priced more for growth than is Procter & Gamble, trading at 20x trailing earnings, but the Street expects it to catch up over the next year: The stock's forward P/E is at 16x.

Elsewhere, Paulson & Co. bought about 3 million shares of Hillshire Brands (HSH), a $3 billion purveyor of packaged meat and frozen goods that resulted from the breakup of Sara Lee (SLE). Over the past couple of years, John Paulson has been struggling to replicate the billions in profits he earned from shorting the U.S. housing market and going long gold in 2010, but he is certainly still an investor to watch. Hillshire trades at 17x forward earnings estimates -- but, at a beta of 0.4, it represents another defensive play.

Dan Loeb's Third Point initiated a 2.8 million share position in Coca-Cola Enterprises (CCE). The company is a distributor of Coke products primarily in Europe after the company sold its North American operations to Coca-Cola in 2010. Due to concerns about the European economy, the stock has risen just 1% over the last two years vs. a more-than-20% gain for the S&P 500. However, Coca-Cola Enterprises is about even with the market for 2012. It still trades at value levels, with trailing and forward earnings multiples coming to 13x and 12x, respectively, and it pays a 2.2% dividend yield to shareholders. It should be noted, however, that last quarter's earnings sank 17% thanks to the company's European exposure.

Finally, Ken Fisher's Fisher Asset Management purchased 5.2 million shares of women's-apparel provider Fifth & Pacific (FNP). Fisher had had no stake in the company at the end of the first quarter. Formerly known as Liz Claiborne (though that specific brand has been sold to J.C. Penney (JCP)), Fifth & Pacific has a market capitalization of $1.5 billion, and shares have roared up 53% this year. The stock trades at 32x forward earnings estimates. Fifth & Pacific has a beta of 2.7, indicating that it is highly exposed to movements in the broader market.

As for our own evaluations, we believe Fifth & Pacific trades at too high a valuation to buy at this time. We also know the risk embedded in Coca-Cola Enterprises -- Europe -- and that's enough to convince us to stay away for now. (Auto-related companies, for example, may be a better way to invest in a stable European economy.)

Of the other three consumer stocks, Procter & Gamble would be our pick. It is a defensive stock, and if it can deliver moderate growth, it should be able to justify its earnings multiples.

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