By Matt Doiron
Billionaire Julian Robertson no longer manages client money, but the former head of Tiger Management - and mentor to the many "Tiger Cubs" who now manage their own funds - is still closely followed in the media. Robertson recently filed a 13F for the fourth quarter of 2012, revealing many of his long equity positions as of the end of December. Even with this data being a little old, we think it can be useful to review top investors' 13Fs for stock ideas that can be researched further if they seem like good values. Historically hedge funds' consensus small-cap picks outperformed the S&P 500 index by 18 percentage points annually despite this delay (check out the details here). Read on for our quick take on Robertson's five largest holdings by market value as of the end of December and see the full list of his stock picks.
Robertson's new top pick was ADT Corp (ADT), which is now independently traded after having been spun out from Tyco International. Spin-outs are often attractive to investors on the theory that management no longer has to concern itself with the parent company's interests and so are better able to improve operations. General optimism about these potential efficiencies have caused the company to be valued at $11 billion, which represents a trailing P/E multiple of 27. Wall Street analysts are less bullish, with fairly modest earnings growth expected over the next couple years (the current price is still 23 times forward earnings estimates).
Mastercard Inc (MA) was another of Robertson's favorite stocks. The credit card brand grew its revenue by 10% last quarter compared to the fourth quarter of 2011, and earnings were higher as well. Many credit card stocks trade at high earnings multiples as the financial community expects the industry to do well going forward, and Mastercard is no exception at 24 times its trailing earnings. Renaissance Technologies, founded by billionaire Jim Simons, has been another investor in Mastercard. We think it's worth comparing Mastercard to cheaper credit card stocks like Discover and Capital One.
$5.5 billion market cap mortgage loan servicing company Ocwen Financial Corporation (OCN), which focuses on the subprime residential mortgage business, also occupied a prime place in Robertson's portfolio. Ocwen is up over 150% in the last year as the markets have become less worried about the subprime market and companies tied to it. That increase has actually been about in line with the improvement in Ocwen's earnings when looking at the fourth quarter of 2012 versus a year earlier. The stock carries trailing and 2013 P/Es of 44 and 9 respectively, demonstrating how high its growth expectations are among both investors and analysts.
The 13F reported that Robertson owned about 360,000 shares of Liberty Global Inc. (LBTYA) at the beginning of 2013, down a bit from about 410,000 shares three months earlier. The $17 billion market cap TV, Internet and phone company is priced for growth - it trades at 24 times consensus earnings for 2014 - and it has been experiencing higher sales in recent quarters. We would still be a bit concerned about the valuation, however. While Liberty Global does have substantial cash on its balance sheet and EBITDA, it also carries a considerable debt load.
While Robertson sold shares of Apple Inc. (AAPL), it is still one of his five largest positions. A number of other hedge funds and notable investors were selling Apple during the fourth quarter of 2012, causing it to drop out of its place at the top of our list of the most popular stocks among hedge funds (see which stock is the new #1). Apple's stock price is now down 11% in the last year, and it now trades at 10 times trailing earnings as the market expresses confidence that its earnings will begin declining. We are less sure of that, and while we are not as optimistic as the analyst consensus (which sets a five-year PEG ratio of 0.5) we would consider it a potential value stock.