Apple Inc. (NASDAQ:AAPL) remains Maverick Capital’s top stock pick, making up 4.7% of the hedge fund’s 13F portfolio. Manager Lee Ainslie graduated from UNC and joined Julian Robertson’s Tiger Management in 1990. In 1993, Ainslie founded Maverick Capital and now runs a solid long/short equity strategy, not trading bonds, currencies, commodities or options.
After reviewing Maverick’s recent 13F with the SEC – which are filings that are useful for individual investors to track as they reveal the holdings of hedge funds and other notable money managers – we have identified the fund’s top five holdings (check out all of Maverick’s bullish bets).
Sitting in Maverick’s No. 1 slot, Apple Inc. (NASDAQ:AAPL) is quite the leader in the tech field, and 2013 can be a monumental year if rumors of an Apple TV are true. Apple trades on the very cheap end of its tech peers at 12x earnings; Microsoft is at 15x and Google is at 21x. Couple the tech company’s valuation with its industry leading 5-year EPS growth of 20% and its 40% return on equity, and it is hard to deny Apple as a ‘growth at a reasonable price’ opportunity.
In addition to an entry into the living room, some other possible growth drivers that Cupertino bulls can look forward to next year include: (1) a deal to sell the iPhone via China Mobile, (2) a dividend boost, with Apple Inc. (NASDAQ:AAPL)’s near $120 billion pile of cash, (3) a blowout Q1 earnings release, and (4) a lower-cost iPhone to appeal to emerging market consumers.
Qualcomm, Inc. (NASDAQ:QCOM) is one of the best value opportunities in the semiconductor market. The tech company makes up 4.5% of Maverick’s 13F. Qualcomm is expected to see revenue growth of 25% in FY2013 and 9% in FY 2014. The company’s long-term EPS growth rate is also expected to be robust at 15%.
Qualcomm should see solid chipset sales in the coming year as the economy slowly improves, and continued growth in the smartphone market continues to boost this outlook. The stock’s forward P/E comes in at 13x, which is well below other major semiconductor companies like Broadcom (26x) and Texas Instruments (20x). Qualcomm’s greatest opportunity, though, may come from its development of LTE chipsets, and the development of LTE networks in developed nations. Billionaire Ken Fisher – founder of Fisher Asset Management - is one of the company’s key supporters (check out Ken Fisher’s big bets).
Avago Technologies Ltd (NASDAQ:AVGO) makes up 3.9% of Maverick’s 13F portfolio. Avago is also in the semiconductor industry, though it trades at less than a tenth of the market cap of Qualcomm. Avago sports an earnings multiple of 14x, below close competitors like Skyworks Solution (19x) and Hittite Microwave (26x). This tech company has one of the best returns on equity at 25%, and has a robust 5-year EPS growth rate of 12%. Compared to Maverick’s other top picks, Avago pays the highest dividend at 2.2%, with only a 24% payout.
What about Lee Ainslie’s No. 4 and 5 picks?
NetApp Inc. (NASDAQ:NTAP) is expected to see revenues up 3% in FY2013 and makes up 3.9% of Maverick’s 13F portfolio. The data storage company should show robust growth with increased IT spending tailored toward storage products. Major competitor EMC trades at 2.6x sales, whereas Netapp is at only 2x. Netapp also recently saw an upgrade from Raymond James to outperform, with increased optimism on tighter integration of flash technology. The valuation of Netapp is also intriguing; its forward P/E of 14x is well below its trailing P/E of 27x, suggesting investors are underappreciating the future. George Soros was upping his stake by over 30% last quarter (see all of George Soros’ top picks).
Last but certainly not least, Cigna Corporation (NYSE:CI) makes up 3.8% of Maverick’s 13F portfolio and is a giant in the employee benefits industry. Cigna is expected to see firm-wide premium and fee revenues up 36% this year on the back of its HealthSpring acquisition. With the purchase, the company’s revised expected annual EPS growth (10%) is above its closest peers. The acquisition also added some 850,000 additional commercial members, and revenue growth is expected to be up 8% in 2013, with a large portion of this growth coming from elderly customers.
On a valuation basis, Cigna trades relatively in line with major peers, compared to Humana (9x) and WellPoint (8x), but it also generates solid return on equity of 17%. It should be mentioned that David Einhorn is the top fund owner of Cigna with over 5.5% of his 13F invested in the healthcare company (check out David Einhorn’s top picks).
Apple Inc. (NASDAQ:AAPL), meanwhile, is one of the cheapest stocks around, and Qualcomm presents a solid growth opportunity. We also like Avago given its exposure to the appliance market, which should prove to be robust with a rebound in consumer spending. Netapp will be able to grow on the back of increased IT spending, and Cigna will see interesting potential from a rapidly aging population.
Continue reading some recent coverage of Apple below: