Whitney Tilson is one of the most outspoken members of the hedge fund community. His investor letters are easily accessible. His presentations about long or short positions can be found in several websites. Earlier this month in a presentation he made the case for investing in Berkshire Hathaway and Microsoft. He believes these two stocks are deeply undervalued. Tilson says Microsoft’s price excluding cash is less than 8x its earnings. He expects Microsoft to earn $2.75 this year. He also thinks Berkshire is 25-30% undervalued.
Generally hedge fund managers talk about a few stocks but they have dozens of other stocks in their portfolios. This is the case with Whitney Tilson. We compiled Tilson’s top 29 positions at the end of March. These stocks returned 1.2% since then, vs. 1.4% for the SPY. Investors don’t have any disadvantage in imitating Tilson’s position today. Here is how Tilson’s top picks performed since the end of 2010:
Company | Ticker | Return (YTD) | Value (x1000) |
MICROSOFT CORP | -8.6% | 47,202 | |
BERKSHIRE HATHAWAY | 0.0% | 35,788 | |
IRIDIUM COMMUNICATIONS INC | 1.5% | 20,458 | |
PENNEY J C INC | 17.8% | 16,763 | |
SEAGATE TECHNOLOGY | 17.1% | 12,693 | |
KRAFT FOODS INC | KFT | 9.8% | 12,133 |
CIT GROUP INC | -8.7% | 11,589 | |
GENERAL GROWTH PPTYS INC | 5.6% | 9,449 | |
ANHEUSER BUSCH | 4.0% | 8,830 | |
HOWARD HUGHES CORP | 21.6% | 8,330 | |
BP PLC | 1.4% | 8,002 | |
RESOURCE AMERICA INC | [[REXI] | -9.6% | 7,018 |
JOHNSON & JOHNSON | 8.6% | 6,565 | |
TWO HBRS INVT CORP | 12.5% | 6,198 | |
DELIA'S INC NEW | 1.1% | 5,543 | |
INTEL CORP | 13.1% | 4,480 | |
AUTOMATIC DATA PROCESSING | 17.1% | 3,249 | |
WINN DIXIE STORES INC | 2.5% | 2,513 | |
WESCO FINL CORP | 4.4% | 1,662 | |
BERKSHIRE HATHAWAY | -0.2% | 1,629 | |
WEYCO GROUP INC | -6.0% | 1,516 | |
JPMORGAN CHASE & CO | 5.0% | 1,473 | |
ASPEN INSURANCE HOLDINGS | -2.5% | 1,378 | |
ST JOE CO (PUT Options) | -14.0% | 1,366 | |
REPUBLIC AWYS HLDGS | -31.1% | 1,353 | |
AMERICAN EXPRESS CO | 17.1% | 1,273 | |
SPARK NETWORKS INC | 11.1% | 1,171 | |
PREMIER EXIBITIONS INC | -12.8% | 1,077 |
Tilson’s top positions underperformed the market by 3 percentage points since the beginning of this year. His fund isn’t performing any better either. He has been in a slump since last August. However we like Whitney Tilson and pay attention to what he does and what he thinks. Over the past ten years his performance is outstanding. He managed to generate an annual alpha of more than 4 percentage points during the past three years. Most hedge fund managers can’t do this. Warren Buffett’s alpha during the past 10 years is close to zero. So in this regard, Whitney Tilson’s investors were better off than Warren Buffett’s investors.
Tilson couldn’t beat the market this year because his top three positions underperformed the market. Microsoft is one of the most popular value stocks among hedge fund managers today. Barry Rosenstein’s Jana Partners, David Einhorn’s Greenlight Capital, Craig Effron’s Scoggin Capital, and Brevan Howard are some of other hedge funds bullish about Microsoft.
We should note that Whitney Tilson is a huge fan of Bill Ackman and he imitates some of Ackman’s positions. Tilson’s best performing stock pick is HHC. Bill Ackman, John Paulson, and John Griffin are other prominent investors with HHC holdings. Another stock that returned close to 20% is JC Penney. Bill Ackman, Ken Fisher, Steve Cohen had large JCP holdings at the end of December.
Whitney Tilson’s stock picks are for long-term investors. Microsoft and Berkshire Hathaway seem to be undervalued but we don’t really know when they will start closing the gap in valuation. They are too big to be targets for activist investors, so all Tilson can do is to make presentations and wait.
Disclosure: I am long MSFT.
