Evaluating market sentiment and paying attention to what prominent players on Wall Street think about a stock could play a vital role in making an investment decision.
Some renowned investors have recently talked about Apple Inc. (NASDAQ:AAPL) Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Alphabet Inc (NASDAQ:GOOGL) St. Jude Medical, Inc. (NYSE:STJ) and Dynegy Inc. (NYSE:DYN). In this article, we will take a closer look at their comments about the companies in question.
We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see more details).
Berkshire’s Manager Reveals the Secret
Earlier this month, Ted Weschler, one of the two investment managers working for Warren Buffett’s Berkshire Hathaway sat down with German magazine Manager Magazin for an interview, in which he explained the rationale behind Berkshire’s love for Apple Inc. (NASDAQ:AAPL). According to Weschler, it is the subscription model element in Apple’s business which makes it a viable option. The company’s subscription model protects it from competition because of the customer loyalty it infuses in the business, and has the potential to keep margins elevated for a long time. Apple’s subscription model also makes it different from the tech behemoths of the past such as Nokia, Blackberry and Motorola, the manager believes.
Warren Buffett usually avoids tech stocks, because, according to him, the sector lacks the necessary insights to properly value companies and their business models. Despite this, Berkshire surprised investors this year by loading up on Apple Inc. (NASDAQ:AAPL) shares, when the company faced an investor exodus as hedge funds owned by big names like Carl Icahn, George Soros, and David Einhorn pulled money from the company. Ted Weschler, who joined Berkshire in 2012, thinks the smartphone industry has been changed because of apps and cloud computing. These services make a “sticky” ecosystem, as customers tend to use Cloud storage for their photographs, and related devices to refine their experience.
Berkshire upped its stake in Apple by 55% in the second quarter, ending the period with over 15.23 million shares of the company, having an aggregate value of $1.45 billion.
Valeant Could Double in Three Years
Bill Miller is bullish on Valeant Pharmaceuticals Intl Inc (NYSE:VRX). The investor, who is famous for beating the S&P 500 Index for 15 straight years, recently said in an interview on CNBC that with its new management and free cash flows, the stock could double in three years. Miller points out that with free cash flow of $2.5 billion to $3 billion on a market cap of $8 billion, Valeant has a 25%-35% free cash flow yield. He thinks Valeant’s core assets are safe from the problem of debt and bought more Valeant Pharmaceuticals Intl Inc (NYSE:VRX) last week. The company is set to announce its third-quarter results on November 8. At the end of the second quarter, Bill Ackman’s Pershing Square had 21.6 million shares of Valeant Pharmaceuticals. The stock has lost about 80% in value year-to-date.
On the next page, we will discuss Alphabet, St. Jude Medical, and Dynegy.