Markets: Follow the billionaire?

There may be a lesson or two in James Packer's decision to offload his Seek and Magellan shares.

It's always dangerous to follow the trading strategies of a billionaire, but James Packer’s decision to sell his stakes in internet job site Seek and fund manager Magellan Financial Group must give investors pause if they are still in both stocks.

Magellan shares have more than doubled in 2013. It is the best performing stock in the S&P/ASX200 Index this year, up 123 per cent. Seek shares have also gained, rising 39 per cent this year. Both shares are expensive, with Magellan trading at a forward 12-month price to earnings of 28 times and Seek at 20 times. The broad market is trading at 13-14 times.

Yet analysts seem unable to let go of a good thing. Magellan has three 'buy' recommendations on the stock and just one 'hold' and one 'sell'. Seek has seven buys, five holds and six sell recommendations.

On the face of it, it’s not hard to see why there is such enthusiasm for both stocks. Magellan has tripled assets under management in the past 12 months to $15 billion. Its flagship fund, Magellan Global Fund, beat all 109 global equity funds available in Australia with more than $US100 million ($110.1 million) in assets over the past three years to June.

Seek has become the dominant job search site in Australia with a market share of about 70 per cent. Its 2013 operating revenue rose 40 per cent to $620.2 million and its net profit, without extraordinary items, was up 8 per cent to $141.1 million.

But investors may have already seen the best share price performance for Magellan and Seek shares. It’s hard to imagine Packer selling out of an investment before he has captured a good deal of its upside. So the gambling mogul’s public disclosure yesterday that he had sold out of both stocks is indeed a signal it may be time for others to take their profits along with another very wealthy Australian.

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