Why Is Apple Inc. (AAPL) Still Legg Mason’s Top Pick?

Metlife Inc (NYSE:MET) moved into Legg Mason’s top five, moving from 7th in 2Q to 4th in 3Q. Metlife has the lowest P/B of other life insurers at 0.7x and the lowest P/E at 13x. Metlife also offers investors a solid dividend yield at 2.2%. Top line growth will be driven by a recovering U.S. economy that will help boost group life sales. Metlife also has very robust growth prospects in international markets, which are expected to boost earnings in this segment by 25% – driven by Latin American operations. When considering Metlife’s growth prospects, we are reminded of Apple Inc. (NASDAQ:AAPL), where Metlife also trades at a mere 0.5 PEG.

Last but certainly not least, Johnson & Johnson (NYSE:JNJ) jumped to the 5th largest holding in Legg Mason’s 13F portfolio after a 20% boost last quarter. Recent acquisitions, including that of Synthes, should be a fundamental driver of Johnson & Johnson’s expected 2013 8% revenue growth. This sales growth should also convert to an 8% growth in earnings for 2013, with nearly 15 cents worth of EPS growth coming from Synthes.

Drug sales will also continue to drive Johnson & Johnson, whilst its medical device segment offers product diversification. Johnson & Johnson maintains a robust drug pipeline and despite its premium 24x P/E – compared to major drug peers – we still believe investors can find value in the pharma company. With a forward P/E of 13x, Johnson & Johnson’s 2013 growth is under-appreciated. We believe Johnson & Johnson is strongly positioned to either accelerate growth via acquisitions or boost its current 3.5% dividend yield, as it has nearly $20 billion in cash and only $17 billion in debt. Billionaire George Soros also committed to Johnson & Johnson last quarter, upping his stake over 1,000% (check out George Soros’ newest picks).

To recap: we believe that all of Miller’s top picks exhibit some of the best value characteristics that he and Legg Mason look for. Apple Inc. (NASDAQ:AAPL) continues to innovate – generating new return on capital avenues with a bevy of new products – and JP Morgan is adapting nicely to an ever-changing financial marketplace. We see Lowe’s as the top value play in the home improvement retail space and Metlife as the top life insurer. Johnson & Johnson is one of the top pharma stocks loved by hedge funds and for good reason, given its diverse product mix and solid dividend.