Since hedge-fund holdings have been found to outperform the market in certain capacities, and since they can serve as a great fountain of new ideas, we maintain a database of 13F SEC filings as part of our work developing investment strategies. Today, we're focusing on the latest disclosure from billionaire Steve Cohen's SAC Capital Advisors, screening the hedge fund's holdings for stocks that have seen insider buying in the past three months. Here are the five largest such holdings as of the end of March.
One of these is Starbucks (SBUX). Former Defense Secretary Robert Gates, a member of the company board, picked up 3,300 shares in early May at an average price of $60.49. Meanwhile, Starbucks was in the top 10 SAC holdings at the end of the first quarter. The coffee purveyor is certainly growing nicely, with revenue up 11% year over year last quarter, and net income rising at an even higher rate. However, the market price is already including a good deal of future growth, so the stock might not be a good value at this time.
Cohen also reported a 1.8-million-share stake in aircraft maker Boeing (BA), and the stock likewise saw insider buying in the past couple of months. Shares are valued at 14x forward earnings estimates, with analysts expecting moderate earnings climbs on sales of its new Dreamliner model. While the aircraft did have some safety issues when it was first introduced earlier this year, those concerns appear to have dissipated. In fact, Boeing's stock has risen 37% over the past year, outperforming the S&P 500.
Meanwhile, there was a big insider purchase at Whole Foods (WFM) in early March, and by the end of the first quarter SAC had nearly tripled the size of its Whole Foods position. As with Starbucks, Whole Foods shares carry a premium valuation: Both its trailing and forward price-to-earnings ratios are at least 30x. In the second fiscal quarter (ended March), both sales and profit rose at double-digit rates, but we still think we would avoid this name for now.
We've also tracked several insiders buying shares in Walter Energy (WLT), a company that primarily produces metallurgical coal, which is used in steel production. Cohen and his team have disclosed quarter-end ownership of 3.4 million shares. Walter has been unprofitable amid a suffering steel market, and the stock is currently down 60% from a year ago -- and many market players remain bearish, with 19% of the share float held short. So, while the consensus insider buying is interesting, the lack of any positive business news may make this stock too risky.
Finally, SAC reported a position of 1.5 million shares in Mosaic (MOS), a fertilizer name with $26 billion in market capitalization, and a member of Mosaic's board bought shares in early April. At 13x trailing earnings, this stock actually carries a premium to some other fertilizer outfits and agriculture companies in general. Furthermore, earnings rose 26% in the February quarter, but revenue only ticked up 2%. As a result, we'd be concerned about the sustainability of future earnings growth.
-- Written by Matt Doiron