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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 year in a presentation he made the case for investing in Berkshire Hathaway (NYSE:BRK.A) and Microsoft (NASDAQ:MSFT). 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 25 positions at the end of June. Unfortunately these stocks underperformed the market since June. Investors can imitate Tilson’s top stock picks at a nearly 15% discount compared to the prevailing prices at the end of June. Here are Tilson’s top stock picks:

Company

Ticker

Value (x1000)

Activity

Return Since June

MICROSOFT Calls

MSFT

34676

0%

-3%

JC PENNEY Calls

JCP

31221

94%

-23%

IRIDIUM COMM (Class 1)

IRDM

17319

42%

-16%

KRAFT FOODS Calls

KFT

13630

0%

-2%

SEAGATE TECHNOLOGY

STX

13629

-4%

-26%

PROMOTORA DE INFOR

PRIS

12321

NEW

-35%

BERKSHIRE HATHAWAY

BRK.B

11936

1%

-8%

MICROSOFT CORP

MSFT

11532

-24%

-3%

HOWARD HUGHES

HHC

11471

50%

-20%

CIT GROUP INC

CIT

8925

-26%

-22%

GENERAL GROWTH PPTYS

GGP

7470

-27%

-16%

JOHNSON & JOHNSON Calls

JNJ

7370

0%

-5%

IRIDIUM COMM (Class 2)

IRDM

7159

-36%

-16%

BP PLC

BP

7143

-11%

-8%

DELL INC

DELL

6873

28%

-11%

ANHEUSER BUSCH INBEV

BUD

6638

-26%

-6%

RESOURCE AMERICA INC

REXI

6367

-1%

-19%

NELNET INC

NNI

6089

NEW

-13%

BERKSHIRE HATHAWAY Calls

BRK.B

5649

-73%

-8%

TWO HBRS INVT CORP

TWO

5643

-77%

-10%

INTEL CORP Calls

NTC

4920

0%

-6%

ACTIVISION BLIZZARD

ATVI

4906

NEW

-8%

PEP BOYS MANNY MOE

PBY

4857

NEW

-18%

DELIA'S INC NEW

DLIA

4851

0%

4%

WESTERN DIGITAL CORP

WDC

4545

25%

-16%

Tilson’s top stock position was Microsoft. The stock outperformed the market by around 7 percentage points since June but Tilson’s investments were mostly in Microsoft calls (probably out of money calls). Microsoft is one of the most popular stocks among hedge funds and its recent performance displays its resilience. David Einhorn detailed why Microsoft is one of his favorite investment ideas at the Ira Sohn Conference at the end of May.

We should note that Whitney Tilson is a huge fan of Bill Ackman and he imitates some of Ackman’s positions. JC Penny, Kraft, General Growth Properties and Howard Hughes Corp are stocks that are also in Ackman’s portfolio.

Tilson had more than $31 Million in JCP calls and that seems like a smart options bet considering the stock's 23% decline since the end of June. Tilson’s actual loss is probably much smaller than 23%. Out of these four stocks, Kraft has the best return during the past six weeks. Recently Kraft announced plans to spin off its North American grocery unit. Billionaire Warren Buffett is the largest shareholder of Kraft among the 300+ funds we are tracking.

Iridium is the third largest position in TIlson’s portfolio. Tilson thinks Iridium is deeply undervalued and he slightly increased his net holdings in the company during the second quarter. Unfortunately the stock lost 16% of its value and is now down more than 12% for the year. Aletheia Research and Management has a large investment in IRDM as well. Israel Englander has the third largest stake in the company among the 300+ funds we are tracking.

Tilson’s top positions underperformed the market this year but 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.

Source: Whitney Tilson's Favorite Stock Picks