Cliff Asness’s Top Stock Picks Include Apple Inc. (AAPL)

By studying quarterly 13F filings from hedge funds, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year (read more about our small cap strategy). We also think that studying 13F filings can be advantageous to investors who are looking for stock ideas for further research, since they can be taken as a list of stock picks from top managers. Cliff Asness founded AQR Capital Management in 1997 after earning a Ph.D. in finance and working at Goldman Sachs Asset Management. Read on for our quick take on AQR’s five largest holdings by market value or see the full list of Asness’s stock picks.

Apple Inc. (NASDAQ:AAPL) may have lost its place as the most popular stock among hedge funds during the fourth quarter of 2012 (AIG is the new most popular stock), but AQR actually increased its position slightly to a total of about 520,000 shares. Pessimism about Apple Inc. (NASDAQ:AAPL)’s margins have driven the stock down to a trailing price-to-earnings ratio of 10. While we do expect much lower earnings than the sell-side (whose estimates imply a five-year PEG ratio of 0.5), we would say that Apple Inc. (NASDAQ:AAPL) is undervalued at its current price particularly given potential uses of its cash.

Asness cut his stake in Exxon Mobil Corporation (NYSE:XOM) by 6% but the supermajor remained one of his top five picks. Exxon Mobil made our list of the most popular energy stocks among hedge funds for Q4 (find more energy stocks hedge funds love), and it too has value potential with analyst consensus for 2014 implying a forward P/E of 11. That is actually a slight premium to many other oil majors, though Exxon Mobil did grow its earnings last quarter compared to the fourth quarter of 2011 and arguably would merit a premium in any case for being the industry leader (and certainly not having the same issues as BP plc (NYSE:BP), for one).