Whitney Tilson is on his own again following the departure of Glenn Tongue from T2 Partners in mid-June. Tilson reacted to the breakup by reducing or selling out of a number of T2’s positions, deciding that he wanted to be able to approach each position in the portfolio on a fresh basis (as well as address any redemption requests from investors). Read on to see some top picks from Tilson or see T2 Partners’s 13F filing for the second quarter.
In a July letter to shareholders, Tilson mentioned that while he had sold out of Berkshire Hathaway Inc. (NYSE:BRK.B) (and, according to our database, had not owned many shares when June ended) he had concluded that it was still a buy and therefore bought back in as he believed it to be undervalued. Berkshire made our list of the ten most popular financial stocks among hedge funds for the second quarter of 2012, likely on the basis that value managers recognize that Warren Buffett is still one of the best investors in the world. Are there succession issues at Berkshire? Absolutely, and Tilson and other shareholders are likely anticipating that the “investing tree”- by which Buffett considers himself a descendant of Graham and Dodd in the tradition of value investing, with an added preference for companies with strong brands- continues in Buffett’s current lieutenants.
Iridium Communications Inc. (NASDAQ:IRDM) was another top pick for T2 Partners at the end of June, with the fund owning 7.4 million shares. Iridium provides mobile data and voice communication services and a variety of communication devices. On a quantitative basis Iridium seems like a good pick: it trades at 11 times trailing earnings despite a 51% increase in earnings last quarter compared to the same period a year earlier. Wall Street analysts expect this growth to continue with a forward P/E of 8 and a five-year PEG ratio of 0.7. We think that it could be worth taking a closer look.
Tilson’s fund also reported a substantial position in Dell Inc. (NASDAQ:DELL). David Einhorn dumped Dell in the second quarter but T2 Partners stayed loyal to the computer manufacturer, which is continuing to move into business services. Dell is cheap at 6 times trailing earnings, but the market sees tablets and smartphones hacking away at the PC business and the stock has fallen 25% over the last year while the market has risen about that much. Sure enough, Dell saw a 8% decline in revenue and 18% decline in earnings in its most recent quarter versus a year ago. The sell-side thinks that the business is stabilizing, and Tilson apparently agrees.
Another stock that T2 still owns following the split is Cisco Systems, Inc. (NASDAQ:CSCO). A number of hedge funds sold out of their Cisco positions during the second quarter, but enough remained in the stock with T2 for it to stay on our list of the ten most popular tech stocks among hedge funds. Cisco also looks like a value stock, trading at 13 times trailing earnings with a large increase in earnings last quarter. The company also trades at 9 times forward earnings estimates and pays a 2.9% dividend yield, high for a tech stock. In addition, it is a market leader. We don’t like that so many funds sold out of the stock, but overall it seems to be a buy nonetheless.
Iconix Brand Group, Inc. (NASDAQ:ICON) was another stock that Tilson bought on net during the second quarter of the year. Iconix licenses and markets a portfolio of consumer brands and has a market capitalization of $1.3 billion. The company isn’t doing too well on the growth front- in its most recent quarter its earnings fell 31% compared to the same period in the previous year despite a small increase in revenue- but carries trailing and forward multiples of 13 and 10, respectively. Therefore, the sell-side expects the business to turn around next year, and if it does the stock should end up being fairly priced. Iconix is highly shorted, with 17% of the float being held short.