Apple Inc. (NASDAQ:AAPL) and American International Group Inc (NYSE:AIG) are the smart money's top two equity investments, according to our database of consensus filings from the end of the fourth quarter. Let's take a look at one fund that was invested in both companies heading into 2013.
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With this in mind, it's also important to take a look at individual positions inside each hedge fund's portfolio, and one fund we haven't analyzed yet is Brian Jackelow’s SAB Capital. Jackelow's top three positions comprise almost 50% of his entire equity portfolio, so let's take a look at this group, starting with No. 1.
Apple Inc. (NASDAQ:AAPL) is the top stock pick in Jackelow’s entire equity portfolio, and against the wisdom of many of his peers, he actually established his position in the tech giant last quarter. Now, this is important because on the whole, aggregate hedge fund interest in Apple Inc. (NASDAQ:AAPL) fell by 15% in Q4, as many managers were either slashing or cutting their stakes entirely. Still, there was a select group of hedgies that used this period to buy when everyone else was selling, including Christian Leone (see Leone's top picks), Louis Bacon and Larry Robbins in addition to Jackelow.
Clearly, a reason behind any Apple-bull's sentiment is tied to the company's bargain bin valuation--shares trade at a PEG near 0.5 and a forward earnings multiple below 9.0x. Key peers Google Inc (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT), meanwhile, trade at a premium of more than 250% to Apple's earnings growth multiple.
Aside from this attractive price, a dividend yield near 2.5% has undoubtedly brought some income-seeking investors into the fold, but an underrated aspect of Apple Inc. (NASDAQ:AAPL)'s future lies in its growth prospects. Yes, EPS growth is decelerating, but Wall Street's five-year annual forecast (19.0%) is above peers like Google (14.4%) and Microsoft (8.4%) quite handily. Shares haven't had a good 2013, but it's worth noting that the average analyst's price target represents a 43% upside from current levels, more than the appreciation that's expected of Google (+1.5%) and Microsoft (+16.2%).
Taking the No. 2 spot in Jackelow’s equity portfolio is American International Group Inc (NYSE:AIG), which dethroned Apple Inc. (NASDAQ:AAPL) to become the smart money's favorite stock last quarter. Aggregately speaking, 142 of the 450-plus hedge funds we track held American International Group Inc (NYSE:AIG) in their portfolios at the end of 2012, versus 134 for Apple. Now, AIG wasn't a new position for Jackelow in Q4--it was one quarter earlier--plenty of prominent fund managers were taking new stakes in the insurer, from Seth Klarman to Stephen Mandel.
Post-bailout, investors have been particularly kind to American International Group Inc (NYSE:AIG)--shares are up more than 15% since the beginning of last December--and there's still plenty here for value-oriented investors.
How exactly is this the case?