Roberto Mignone established Bridger Management in July 2000, right before he turned 29 years old. Prior to that, Mignone co-founded Blue Ridge Capital with John Griffin in 1996 and worked at Julian Robertson’s Tiger Management LLC. Mignone’s strategy is to focus on a few positions and monitor them carefully. Mignone’s core positions include about 30 long positions, which are each limited to 5% of the portfolio initially and never get larger than 10%.
Mignone recently released the latest holdings of his Bridger Management in a 13F filing. Let’s take a closer look at the most bullish bets and decide whether investors should imitate these stock picks.
Google Inc (GOOG): GOOG is the largest position in Mignone’s latest portfolio. At the end of last year, Bridger Management reported to own $122 million worth of GOOG shares. GOOG is a popular stock among hedge funds tracked by us. There were 96 hedge funds in total with GOOG positions in their 13F portfolios at the end of the third quarter last year. For example, two other tiger cubs, Chase Coleman and Stephen Mandel, were also bullish about GOOG. Coleman’s Tiger Global Management and Mandel’s Lone Pine Capital both had about $500 million invested in this stock. Ken Fisher and John Griffin were also in favor of GOOG.
We agree with these hedge fund managers. Google has been expanding in multiple areas, including social media and display advertising. It also has robust revenue growth, expanding profit margins, and reasonable valuation levels. GOOG looks undervalued compared with its peers. The main competitors of GOOG are Yahoo Inc (YHOO) and AOL Inc (AOL). GOOG’s forward P/E ratio is 12.09 and it is expected to grow at an average of 18.75% annually in the next five years. This means that GOOG’s 2014 P/E ratio is 8.6, versus 12.5 for YHOO and 19.96 for AOL.
GOOG is not alone among tech giants with low valuations. For example, Apple Inc (AAPL) is also trading at attractive multiples. AAPL is also a large position in Mignone’s portfolio. As of December 31, 2011, Bridger Management had $77 million invested in AAPL shares. AAPL is also very popular among hedge funds. At the end of September, there were 125 hedge funds disclosed owning AAPL in their 13F portfolios. Tiger Cub Stephen Mandel was bullish about AAPL as well. Other big names include David Einhorn, John Griffin, Andreas Halvorsen, and Jim Simons.
We like AAPL as well. It has a forward P/E ratio of 10.58 and it is expected to grow at 18.76% on the average over the next five years, which indicates that its 2014 P/E ratio is only 7.50. Investors value utility stocks at about 13-14 times their earnings, while tech stocks with much higher growth rates are valued at almost half of these multiples. Hedge funds noticed this opportunity and enjoyed strong gains from AAPL last year. The stock returned over 38% over the past 52 weeks, outperforming the S&P 500 index by more than 34 percentage points. We think it is not too late to buy AAPL. We believe it will continue to be a winner in the future.
A few other large positions in Mignone’s portfolio include United Rentals Inc (URI), Directv Group Inc (DTV), and Morgan Stanley (MS). All three stocks are trading at low multiples and have double-digit expected growth rates. MS has a forward P/E ratio of 8.12 and is expected to grow at over 10% annually in the next five years. So its P/E ratio for 2014 is about 6.7. MS’ major competitor, Goldman Sachs & Co (GS), also has a low 2014 P/E ratio of about 7.0. We like MS. Its management team is taking steps to further lower the risk of the company’s business. MS is quite popular among hedge funds too. There were 38 hedge funds with MS positions at the end of September. Besides Mignone, Eric Mindich was also bullish about MS. His Eton Park Captial had over $300 million invested in this stock.
Overall we like Mignone’s stock picks. We especially like his bets on attractively valued tech giants. We see great potential in these tech stocks with low valuations.