Apple Inc (AAPL), Mastercard Among This Hedge Fund’s Top Stock Picks

Apple Inc (NASDAQ:AAPL) is a top pick among the world’s richest hedge fund managers. Of the funds we track, over 40% of billionaires had a long position in the tech giant at the end of the last quarter. Some of the most prominent money managers that own shares of Apple include David Einhorn, Jim Simons, and Ken Griffin. Here’s the complete list.

Now, one Apple Inc (NASDAQ:AAPL) bull that often flies under the radar is Steven Owsley, the founder of Madison Street Partners. Owsley founded Madison Street in 2004, and chose a location off the beaten path of Wall Street: Denver, Colorado. Whether it’s the crisp mountain air or just his penchant for being out West, Owsley’s move has paid off. His fund currently manages close to $250 million in assets under management, and Madison Street’s 13F portfolio returned 14.7% last quarter, good for 32nd among the funds we track. Here’s Owsley’s entire portfolio, but we’re going to take a look at his top five holdings. Let’s get into it.

Holding the top spot in Owsley’s portfolio is Liberty Media Corp (Capital) (NASDAQ:LMCA), which accounts for nearly 15% of the hedge fund manager’s holdings. Liberty Capital is one of Liberty Media’s trio of tracking stocks, and gives investors a stake in all Liberty Media assets that are not within Liberty Interactive and Liberty Entertainment. The most notable of Liberty Capital’s assets include: Starz, the Atlanta Braves MLB franchise, a 17% stake in Barnes & Noble, Inc. (NYSE:BKS), a 35% stake in Live Nation Entertainment, Inc. (NYSE:LYV), and a near-takeover of Sirius XM Radio Inc (NASDAQ:SIRI).

Apple Inc. (NASDAQ:AAPL)

As Liberty’s stake in Sirius XM has increased, so has its stock price, which is up over 18% in the past three months. Now, the FCC still needs to approve the company’s takeover effort, but it’s clear that the markets are expecting one. Current CEO Mel Karmazin has said that he plans to step down on February 1, 2013, and billionaire John Malone has stated his wish for Sirius to spin off the stake to Liberty Shareholders. Despite its momentum, Liberty Capital can still be bought on the cheap, as it sports a trailing price-to-earnings ratio (17.7X) below the industry average (19.5X), and many of its closest peers.

We’ll get to Apple Inc (NASDAQ:AAPL) shortly, but second in Owsley’s portfolio is Mastercard Inc (NYSE:MA). Owsley currently owns over $10 million worth of the consumer financial services company, which has returned close to 25% since the start of the year. Mastercard has beat the Street’s earnings expectations in six straight quarters, and impressed with its most recent Q3 release.

In the period, Mastercard reported an EPS of $6.17 a share, 25 cents higher than consensus estimates. The biggest driver of the company’s earnings growth, which is expected to average 18.8% a year through 2017, is its mobile payments services. As is the case with most of Owsley’s stock picks, Mastercard isn’t a one trick pony, as it also sports a favorable valuation. The stock trades at a PEG ratio of 1.46, while Visa, its closest competitor, trades at a PEG of 7.00. Mastercard also trades at a discount to Visa in terms of forward and trailing P/Es, by an average margin of -43.6%.

Third on Owsley’s “list” is Liberty Global Inc. (NASDAQ:LBTYK), a large cap company in the Pay TV industry. Liberty Global owns a number of cable networks throughout Europe, and also provides high-speed Internet and telecom services to Netherlands, Switzerland, Austria, Belgium, Germany, Ireland, Hungary, Romania, Poland, the Czech Republic, and Slovakia. Liberty Global also has operations in Chile and Puerto Rico.

In 2011, the company made over $9.5 billion in revenue, and reported having 18.4 million television customers, 8.2 million Internet customers, and 6.2 million landline telecom customers. This was a growth of over 5% from the previous year, and Liberty Global has been able to translate this into solid EPS growth in 2012. The company is expected to finish the year with earnings of $1.72, its first profitable year since 2010. The stock currently sports a PEG ratio of 0.53, as analysts expect growth to pick up over the next five years. If Owsley’s conviction is any indication – Liberty Global accounts for nearly 10% of his portfolio – there may be a great value play here.

Pain Therapeutics, Inc. (NASDAQ:PTIE), a small cap biopharmaceutical company has returned over 22% since the start of the year, but experienced quite the selloff on November 1st. Shares of the stock fell over 35% to below $3 a share on the news that Remoxy partner Pfizer has had “troubles” with an FDA refiling. The drug was originally rejected last summer. Pain Therapeutics has a lot riding on Remoxy, as evident by the selloff it is experiencing. On the company’s website the drug was described as “a strong painkiller with a unique formulation designed to reduce potential risks of unintended use,” but the FDA has found that the abuse-resistant drug does not deter all types of unauthorized usage. Valuation metrics indicate a mixed bag with Pain Therapeutics, but the stock will continue to be a gamble until more details about Remoxy’s re-app are made public. In the double-digit selloff, Owsley’s lost over $3 million in his fourth largest holding.
Last but certainly not least, Apple Inc (NASDAQ:AAPL) is the fifth largest stock in Owsley’s 13F portfolio, and accounts for 8.8% of the fund manager’s total holdings. In the third quarter, Apple was a solid investment, returning over 14% during this period. Now, in the time since, Apple has been a dog, falling from the $660 mark to below $600 a share for the first time since July. The past few weeks has been a busy time for Apple Inc (NASDAQ:AAPL), which has released a bevy of new products while saying goodbye to innovative team members Scott Forstall and John Browett.
Additionally, fears that the company’s margins took a hit after the iPhone 5 launch are also built into Apple Inc (NASDAQ:AAPL)s’ stock price, but most are forgetting that the same thing happened last year with the iPhone 4Gs. Apple’s margins took a temporary hit before rebounding to stratospheric levels. From a valuation standpoint, we all know that the company is under appreciated, at least in terms of traditional metrics like P/E and PEG ratios, but there’s clearly pessimism that’s driving this stock down.
At these levels, Apple Inc (NASDAQ:AAPL) remains a great buy, but it remains to be seen exactly when the markets will recognize this fact. One positive growth driver that can catapult Apple back to a fair valuation is its potential deal with China Mobile Ltd. (NYSE:CHL) to provide iPhones to its user base of nearly 700 million. In the meantime, continue reading here to check out the entire hedge fund industry’s sentiment toward Apple.
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