Here Are This Elite Fund’s Top Stock Picks

Christopher C. Grisanti‘s Grisanti Brown & Partners is a successful hedge fund with a focus on consumer and healthcare stocks. Mr. Grisanti is a graduate of Harvard Law School and the owner/co-founder of the fund. Founded in 1999, Grisanti Brown & Partners’ performance has been solid, with market-beating returns since inception, and the equity portfolio value of the firm stands at approximately $252 million at the end of September. Given that the fund recently filed its latest 13F, let’s take a closer look at the fund’s top picks of Mastercard Inc (NYSE:MA), AbbVie Inc (NYSE:ABBV), Morgan Stanley (NYSE:MS), Kinder Morgan Inc (NYSE:KMI), and BlackRock, Inc. (NYSE:BLK).

In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, Insider Monkey looks at only the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge, not because they can’t pick good stocks. In fact, these hedge funds managed to outperform the market on the long side of their portfolio. The 15 most popular small-cap stocks among these hedge funds did even better, returning 102% since the end of August 2012 and beating the S&P 500 Index by 53 percentage points (see the details here).

#5 Mastercard Inc (NYSE:MA)

Shares held (as of September 30): 157,785
Total Value (as of September 30): $14.22 million
Percent of Portfolio (as of September 30): 5.65%

Mastercard Inc (NYSE:MA) is up by 18.65% year-to-date as the U.S economy strengthens. Given the U.S unemployment rate has fallen to 5%, more consumers are able to get credit, or feel more comfortable using more of it, which will increase Mastercard’s revenue and profits. In light of the positive macroeconomic backdrop, hedge funds are optimistic. According to the data culled from around 730 elite funds that we monitor, 75 funds reported stakes in Mastercard worth $7.74 billion as of the end of June, with Warren Buffett‘s Berkshire Hathaway holding 5.23 million shares at that time.

#4 BlackRock, Inc. (NYSE:BLK)

Shares held (as of September 30): 60,631
Total Value (as of September 30): $18.04 million
Percent of Portfolio (as of September 30): 7.16%

Grisanti Brown & Partners increased its holding in BlackRock, Inc. (NYSE:BLK) by 149% in the third quarter, as the investment manager reported solid third quarter diluted earnings of $5.00 per share, exceeding estimates by $0.43 per share. Revenues were also higher than expected, with BlackRock’s revenue coming in at $2.91 billion, beating expectations by $90 million. Revenue was up by 2.1% year-over-year. Shares of the company trade at a reasonable forward P/E of 17.1, which is in-line with the S&P 500’s forward P/E of 17.6.

Grisanti’s top three stock picks are discussed on the next page.

#3 Kinder Morgan Inc (NYSE:KMI)

Shares held (as of September 30): 663,220
Total Value (as of September 30): $18.36 million
Percent of Portfolio (as of September 30): 7.29%

Grisanti bought 586,340 shares of Kinder Morgan Inc (NYSE:KMI) between July 1 and September 30, as shares of the midstream giant offer extraordinary value. Shares of the oil and gas pipeline operator pay a dividend yield of 7.83%, or over three-times higher than the 10-year yield, because investors worry that the low energy prices will negatively affect the oil and gas volumes running through Kinder Morgan’s pipes. The bearish investors could be operating under a false premise, however, as management still believes Kinder Morgan’s dividend yield will grow at a fast rate over the next five years. Eight analysts have ‘Buy’ ratings on the stock, while five have ‘Hold’ ratings, with them having a consensus price target of $41.79 among them, over 50% upside from its current price.

#2 Morgan Stanley (NYSE:MS)

Shares held (as of September 30): 584,350
Total Value (as of September 30): $18.41 million
Percent of Portfolio (as of September 30): 7.31%

Morgan Stanley’s third quarter was a bit deflating, as EPS missed by $0.29 and revenue missed by $1.21 billion. Revenue also declined by 15.7% year-over-year. Weak trading results and increased volatility were the primary culprits for the bad quarter. Despite the disappointing results, there is value in Morgan Stanley shares, as Morgan Stanley is trading under 1.2x tangible book value. Many hedge funds own Morgan Stanley, as 48 funds owned $2.76 billion of Morgan Stanley (NYSE:MS) shares on June 30. Grisanti increased its position in the investment bank by 82% in the third quarter.

#1 AbbVie Inc (NYSE:ABBV)

Shares held (as of September 30): 404,550
Total Value (as of September 30): $22.01 million
Percent of Portfolio (as of September 30): 8.74%

AbbVie reported solid third quarter results, with EPS of $1.13 on revenues of $5.94 billion, versus estimates of $1.08 and $5.934 billion. Revenue increased by 18.3% year-over-year, driven by an increase in the sales of Viekira Pak and Imbruvica, along with continued strength in AbbVie’s number one product Humira. Guidance is optimistic, with non-GAAP EPS expected to be $4.26-to-$4.28 for 2015, versus the previous $4.10-to-$4.30 range. Shares have rebounded nicely since late October when the FDA asked AbbVie to add extra warning labels to Viekira Pak and Technivie. Healthcare-focused billionaire Larry Robbins of Glenview Capital owned 17.86 million shares of AbbVie at the end of June.

Disclosure: None