Stan Druckenmiller sold the following stocks during the first quarter of this year: Apple, Inc. (NASDAQ:AAPL), Ford Motor Co. (NYSE:F), JPMorgan Chase & Co. (NYSE:JPM), Johnson & Johnson (NYSE:JNJ), and Spectrum Pharmaceuticals, Inc. (NYSE:SPPI). These five positions accounted for 25% of the portfolio’s share count and 8% of its total value ($1.2 billion) at the close of 4Q11.
Druckenmiller has been a long time Apple fan but he probably decided to sell his shares after the stock surpassed the $500 billion market cap threshold. Apple is still the most popular stock among hedge funds despite some sells by prominent investors. Ford Motor Co. had a significant run-up in the middle of 4Q11, rising from approximately $9.30 to $12.50; it would later give these gains back in the latter half of the quarter. During 1Q12, Ford traded back up to $12.88, but is now back to $9.10. We think Ford is a great long-term stock pick even though it may keep showing some short term weakness due to the global slowdown.
Over the last year JP Morgan’s shares have descended by approximately 10%; it has underperformed for most of this period. Druckenmiller’s sale was timely but we think JP Morgan also presents a great long-term buying opportunity. Its CEO made a large insider purchase two weeks ago and we strongly recommended the stock at that time. The stock is up 6% since then.
There do not appear to be major sector plays. Aside from the sale of Ford, which we interpret as a rotation out of the domestic car market, the following additions to the portfolio indicate Druckenmiller retained exposure to all of the following sectors: technology, financials, and biotechnology/drugs. During the first quarter billionaire investor Stan Druckenmiller initiated large brand new positions in Qualcomm (NASDAQ:QCOM) and Wells Fargo (NYSE:WFC). He probably thought that QCOM is a better bet than Apple and Wells Fargo will outperform JP Morgan. Qualcomm lost 12% since the end of the first quarter vs. a 1% loss for Apple. Druckenmiller’s performance was better when it came to Wells Fargo. The stock only lost 1.4% whereas the losses at JP Morgan exceeded 20%.
Qualcomm has been showing strong year over year growth numbers but the quarterly figures tell a different story. Revenues were up 28% y-o-y but down 6% sequentially. Net income is up 17% y-o-y but down 46% sequentially. Finally, earnings per share is up 13% y-o-y but down 46% sequentially. These short-term declines are influenced by the slowdown in Europe but we think these present an opportunity to initiate a long-term position. The company is the darling of hedge funds because of its huge growth prospects, yet it trades at a trailing PE ratio of 17. It has more than $26 billion in cash, cash equivalents and marketable securities and yields 1.7%. The company expects to earn around $3.64 in FY2012, giving it a forward PE ratio of less than 15 excluding cash. Billionaires Stephen Mandel, Ken Fisher, David Tepper and Leon Cooperman are among Qualcomm shareholders (see Lee Cooperman’s top picks).
The most notable position in Druckenmiller’s portfolio is the call options on Gold ETF (NYSEARCA:GLD). This acts as a hedge against the cyclical positions, as do certain restaurants whose positions were carried over from 4Q11 to 1Q12. Taken together, we view the portfolio as cautiously optimistic.
