Julian Robertson is a former hedge fund manager. He retired more than 10 years ago, but he is still widely followed by the media and ordinary investors. His comments on the market and the stocks still attract a lot of attention. Robertson still invests directly in other hedge funds, most of which are run by his Tiger cubs. Robertson founded Tiger Management Corp, one of the earlier hedge funds, in 1980 with about $8 million capital. The fund returned 31.7% on the average per year after fees between 1980 and 1998, outperforming the market by 19 percentage points. It manages more than $22 billion worth of asset in the late 1990s. Though Robertson did not do well in 1999 and 2000, his overall return was still 26%.
Tiger Management recently released its latest holdings in a 13F filing. Let’s take a closer look at the most bullish bets and decide whether it makes sense to imitate these stock picks.
Apple Inc (AAPL): AAPL is the large position in Tiger Management’s portfolio. As of December 31, 2011, the fund had $28 million invested in AAPL, which is the most popular stock among hedge funds tracked by us. There were 125 hedge funds with AAPL positions at the end of the third quarter. For example, Tiger cub Stephen Mandel’s Lone Pine Capital Management had $785 million invested in AAPL. Another Tiger cub Chase Coleman’s Tiger Global Management LLC also had $646 million invested in this stock.
Despite its enormous returns over the last couple of years Apple is still a great investment. Apple designs and sells great products that are welcomed by consumers. We think most of its products, such as iPad, iPhone, and MacBook, will achieve more market penetration globally in the next few years. AAPL is also very attractive when it comes to valuation. It has a forward P/E ratio of 10.68 and its EPS is expected to grow at 18.76% annually over the next five years. Therefore, its forward P/E ratio for 2014 is about 7.57.
AAPL is not the only tech giant with appealing valuations. Hewlett-Packard (HPQ)’s P/E ratio for 2014 is 5.8 and Google (GOOG) has a 2014 P/E ratio of 8.7. GOOG is also a large position in Tiger Management’s portfolio. The fund reported to own $23 million worth of GOOG shares at the end of last year. Investors are still extremely cautious, investing in low risk stocks. They value utility stocks at 13-14X their earnings whereas tech stocks that grow at much higher rates are valued at almost half of these multiples. This is an incredible opportunity for long-term investors. Hedge funds noticed this opportunity, pounced on it and enjoyed strong gains from AAPL last year. We believe Apple will continue to be a winner.
Goldman Sachs Group Inc (GS): Tiger Management increased its GS stakes by 12% over the fourth quarter. At the end of last year, it had $21 million invested in GS. There were 47 hedge funds disclosed owning GS in their 13F portfolios at the end of the third quarter. For example, Jim Simons’ Renaissance Technologies also had over $100 million invested in GS. We like GS’ strong relationships with clients and leading position across global capital markets. GS also has a low forward P/E ratio of 8.56. Its EPS is expected to grow at 11.62%, which indicates that its P/E ratio for 2014 is about 6.87.
In fact, many financial companies are trading at low multiples as their prices went down significantly during the European debt crisis. The main competitors of Goldman Sachs include JPMorgan Chase & Co (JPM) and Morgan Stanley (MS). Both stocks have attractive P/E ratios for 2014. JPM’s 2014 P/E ratio is 6.15 and MS’ is 6.75. Among GS, JPM, and MS, we like JPM the best. It has not only the lowest 2014 P/E ratio, but also the lowest beta, indicating that it is relatively less risky. JPM’s beta is 1.24, versus 1.43 for GS and 1.56 for MS. JPM is also more popular among hedge funds. There were 78 hedge funds with JPM positions at the end of the third quarter, including Lee Ainslie’s Maverick Capital, John Paulson’s Paulson & Co, and Jim Simons’ Renaissance Technologies.
A few other large positions in Tiger Management’s portfolio are Valeant Pharmaceuticals International (VRX) and Liberty Global Inc (LBTYA). We do not think these two stocks deserve a closer look at this moment because Robertson reduced his stakes in both positions over the fourth quarter. Overall we like Robertson’s top stock picks in technology and finance sectors. Technology and financial stocks are undervalued and it is still not too late to buy them.