Filings from hedge funds and other notable investors, specifically 13F filings, can be a useful source for stocks picks and investment strategies.
For example, we at Insider Monkey have found that by imitating the most-popular small-cap picks among hedge funds, it is possible to outperform the market over time.
Sprott Asset Management, managed by Eric Sprott, invests most of its capital in basic-materials companies, including many precious-metals miners. The fund recently filed its 13F for the fourth quarter of 2012, which discloses many of its long-equity positions as of the end of December; therefore, this filing can serve as a guide to what the investment team liked at the beginning of this year.
The fund's top pick was First Majestic Silver AG , a $2.1 billion market cap silver miner whose operations are primarily located in Mexico. Sprott owned 4.8 million shares of the stock, down slightly from three months earlier but still a larger position than in June 2012. First Majestic has struggled over the past year, with its stock price down and earnings coming in 11% lower in the third quarter of 2012 than a year earlier. Wall Street analysts believe that 2013 will be a better year for the company, and the current price is only 10 times their consensus earnings estimates.
While Sprott cut its stake in Coeur d'Alene Mines CDE , the global silver miner remained one of its largest positions with a stake of 1.2 million shares going into 2013. David Dreman's Dreman Value Management also liked Coeur d'Alene in the third quarter of 2012, closing September with 1.5 million shares in its portfolio. The company has also saw its stock price decline, and revenue was down 33% in its most recent quarter vs. the 2011 third quarter. As with First Majestic, the current-year P/E multiple is more modest at 11.
The emphasis on silver continued as the fund reported a position of about 780,000 shares in Silver Wheaton SLW , about even from three months earlier. It too reported a drop in financial performance in its most recent quarterly report, with double-digit percentage declines on both top and bottom lines.
Silver Wheaton, at a market cap of almost $13 billion, is considerably larger than either First Majestic or Coeur d'Alene. Renaissance Technologies, managed by billionaire Jim Simons, added shares during the third quarter and owned a total of 1.6 million shares at the end of September (find Renaissance's favorite stocks). The current-year P/E is 17.
Alexco Resource Corp AXU does produce some silver, but is also a miner of other minerals, including quartz. While its market capitalization is only about $270 million, an average of about 250,000 shares are traded per day and the current stock price is about $4.40; this equates to over $1 million in daily dollar volume.
Sprott kept its stake in Alexco about constant during Q4 at 6.9 million shares. Net income here has actually been up sharply, but sales have been down, so we' d include that growth rates in earnings are unsustainable. Alexco also trades at a premium to many of the companies we've discussed at 26 times expected earnings for 2013.
Sprott bought shares of Pretium PVG , an exploration stage precious metals miner with properties in Canada, during the quarter and reported 1.7 million shares in its 13F. The stock is generally highly sensitive to broader market indices � it has a beta of 2.3 � yet has fallen 34% in the last year. The sell-side does not expect it to generate profits this year. Pretium's exploration interests focus on gold, copper, and silver. We would recommend that investors avoid the stock because of its speculative nature.
This column was written by Matt Doiron.
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