5 Stocks That Smart Funds Were Buying In Q4 (13F Filings)

The Q4 2016 13F filings have been released showing hedge fund positions. Using Whale Wisdom’s excellent suite of tools I am able to customize a list of my 50 favorite hedge funds and then look for common buy/sell activity throughout the quarter.

These are funds with fairly high concentration, lower turnover, strong track records, and out of the box thinking with quality investments. A method to find some of the smartest funds is simple back-testing, looking at some of the top performing growth stocks and then finding funds that were early holders of the names and continue to hold.

For this research post, I found a few less popular stocks seeing buying activity across five or more of my top 50 funds from the Q4 2016 13F filings.

Here are 5 stocks that stood out:

1.  Tractor Supply Co. (NASDAQ:TSCO) is a $9.45B specialty retailer with a focus on selling to recreational farmers and ranchers, shares trading 18.6X Earnings, 1.39X Sales and 32.5X FCF with a 1.32% dividend yield. Tractor Supply projects 7-8% annual revenue growth through 2019 and sees EPS growth of 7% in 2017 and then accelerating to 11-13% in 2018/2019. Comps were above 8% in 2013 and have since fallen every year to just 3.1% in 2016, but TSCO continues to expand its presence, opening more than 100 stores per year and has posted 35 straight quarters of traffic growth.

The prolonged downturn in Energy & Ag markets clearly weighed on TSCO’s results, but both markets now look to be seeing improving conditions. The company will hold an Investor Day on 2-21. Notable buyers of TSCO stock in Q4 include Wedgewood Partners, Millennium Mgmt., Alyeska, Scopia Capital, Marisco Capital, Turtle Creek, and Samlyn Capital.

2.  Extraction Oil & Gas (NASDAQ:XOG) is a newer name in the Energy space that came public in October of 2016, so it is normal to see it as a new position for funds, but it was a popular name among my most notable funds. The $3.5B Company focused on the Rocky Mountains primarily in the Wattenberg Field with 237,000 net acres, 117,000 in the core DJ Basin. It is a low cost-developer at $8/Boe and Q4 production was ~ 42% Oil and 65% liquids with 238MMBoe Proved Reserves at 38% Oil and 64% liquids. Comparing Extraction Oil & Gas (XOG) to peers on my Oil & Gas sheet on EV/Production and EV/Proved Reserves, it appears very undervalued. XOG also carries very little debt, and since 2016 a production growth CAGR of 66%. Extraction Oil & Gas is a very well operated strong production growth play with an attractive valuation. XOG has to earnings investor’s trust hitting production and capital efficiency targets, and if it continues to operate well shares look to have at least 50% upside. Notable buyers of XOG stock in Q4 included Viking Global, Pennant Capital, Times Square Capital, Point-72, Alyeska, and Gilder Gagnon Howe & Co.

3.  Snap-On (NYSE:SNA) is a $10.1B maker of tools and repair system solutions trading 15.9X Earnings, 2.7X Sales, and 28.5X FCF with a 1.62% yield. Snap-On is a low revenue growth name with two years of 3% growth and sees revenues down 2.2% in 2017, but EPS has been growing at double digits and sees just under 10% annual EPS growth the next two years. SNA’s 28% EBITDA margins and 17.6% ROIC with Debt/EBITDA at just 1X has made it attractive to investors for years.

Snap-On’s success has been closely tied to the Automotive market which continues to see expanding sales despite years of calls for the market to “peak.” Its latest quarter showed that growth is starting to accelerate into 2017 which can lead to multiple expansion. Notable buyers of SNA shares in Q4 included Melvin Capital, Point-72, Ashmore Wealth Mgmt., and Alyeska.

4.  Progressive (NYSE:PGR) is a $22.35B provider of property insurance, and was a surprising “boring” name to see on so many filings, though Financials were under heavy accumulation by funds in Q4. PGR shares trade 16.5X Earnings, 2.8X Book and yield a 1.77% dividend. The company is forecasting a second consecutive year of double digit revenue growth and a record year of EPS growth at 23.7%, coming off a very strong Q4 report. Progressive insurance has definitely created a strong brand the last few years with its advertising campaigns. Progressive (PGR) is deserving of a premium valuation with its impressive 15% ROE. PGR’s short duration portfolio also makes it a beneficiary of the recent rise in yields. Notable buyers of PGR in Q4 include Times Square Capital, Millennium Mgmt., Viking Global, Balyasny, Samlyn Capital, Diamond Hill, and Alyeska.

5.  Athene Holding (NYSE:ATH) is another new name debuting in December, a $10B retirement services company trading 12.6X Earnings and targeting double digit revenue growth through at least 2019 as well as a strong outlook for EPS, expecting to earn over $5.50/share in 2019 after earnings $3.63/share in 2016. ATH is backed by Apollo Global Mgmt., and focused on fixed and index annuity markets. ATH has been seeing rapid growth in new deposits the last few years and last quarter posted 265% Y/Y deposit growth and invested assets grew 17% to $71.6B mainly in Corporates, Credit, and Real Estate. ATH also has $1B of excess capital ready for potential acquisitions, reports recently suggesting it may bid for Fidelity & Guaranty Life if China’s Anbang Insurance cannot win approval, and would be significantly accretive. A potential revision of the DOL rule is another upside catalyst for shares. Notable buyers of ATH shares in Q4 included Temasek, Levin Capital, Victory Capital, Samlyn Capital, Pennant Capital, and Brahman Capital.

You can get more of my research and options trading ideas over at OptionsHawk.  Thanks for reading and have a great week!

 

More from Joe:  Health Care Services Group (HCSG): A Consistent Growth Story

 

Twitter: @OptionsHawk

The author does not have a position in mentioned securities at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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