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Bain Capital’s Brookside Capital Likes Apple Inc (AAPL), Monsanto, and EMC Corp

Apple Inc (NASDAQ:AAPL), Monsanto Company (NYSE:MON), and EMC Corporation (NYSE:EMC) are among Bain Capital’s subsidiary Brookside Capital’s top stock picks. Bain Capital was founded by several Bain Consulting employees in the 1980s as a mechanism to provide investors with direct profit from the management skills they had acquired at Bain. By buying companies and improving their operations, Bain Capital could provide high returns. Over time, Bain has become a large asset management organization and has expanded into several areas. Brookside Capital is a long/short public equities fund which uses fundamental analysis as well as industry and competitive insights in line with the Bain Consulting tradition. It invests across all economic sectors.

As a hedge fund, Brookside Capital files 13F documents for each quarter about six weeks after the close of the quarter. According to their filing for the second quarter of 2012, here were some of their favorite stocks:

Apple Inc. (NASDAQ:AAPL)

Brookside had a position of about 520,000 shares in Apple Inc. (NASDAQ:AAPL), which made it the largest position in the fund’s portfolio according to its filing. Apple Inc (NASDAQ:AAPL) leads our list of the ten most popular stocks among hedge funds. Apple’s popularity among hedge funds didn’t go down during the second quarter in contrast to many of the other top stocks, which tended to see hedge funds sell out. Apple Inc (NASDAQ:AAPL) trades at 16 times trailing earnings and certainly has prospects for continued growth.

The second slot in Brookside’s portfolio, according to the 13F, belonged to Monsanto Company (NYSE:MON). Brookside added shares during the second quarter, growing its position by 53%, and owned 3 million shares at the end of June. Monsanto’s primary business, genetically engineered seeds and biotechnology traits, could be a promising growth area as global demand necessitates higher agricultural yields. Last quarter earnings rose 35% compared to a year ago. Monsanto trades at 22 times trailing earnings and 20 times forward earnings estimates. It’s not a value stock, but it is well positioned to get at least some growth and potentially justify its valuation.

EMC Corporation (NYSE:EMC) was another of Brookside’s top picks as the fund increased its stake in the data storage company by 38% to a total of 9.4 million shares. Interest from other investors- a total of 51 filers in our database reported a position in the stock- earned EMC a place on our list of the technology stocks hedge funds like. The company grew its earnings 19% last quarter compared to the same period in the previous year. It trades at a trailing P/E of 23, but based on expectations of continued growth its forward P/E is 14 and its five-year PEG ratio is just above 1. The sell-side therefore thinks the price is about right.

Brookside owned 6.4 million shares of Kinder Morgan Inc (NYSE:KMI), a $37 billion market cap owner and operator of oil and gas pipelines. Kinder Morgan has risen 42% over the last year as increased U.S. production requires more infrastructure to move it to processors and to market. Like with some of these other stocks, the funds has apparently studied the company’s growth prospects and concluded that they are strong; Kinder Morgan’s forward earnings multiple is 27. The stock pays a dividend yield of 3.9%, so may be of interest to income investors, but doesn’t appear to be as good a value as some of these other stocks.

Dollar General Corp. (NYSE:DG) was the fifth largest holding in the portfolio according to Brookside’s filings as the fund initiated a position of 3.7 million shares. We looked at Dollar General earlier this month. Dollar General and other dollar stores have drawn attention from investors over the last several quarters as their discount pricing offers immunity from low consumer spending (Dollar General, for example, has a beta of 0.1). This is another growth stock, with its most recent quarterly earnings being 47% above the figures from a year earlier. Its trailing P/E is 19 and it could be considered a “growth at a reasonable price” stock.

Our favorite pick among these five stocks is without a doubt Apple Inc (NASDAQ:AAPL).

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