Maverick Capital's Top Stock Picks

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Includes: AAPL, APOL, C, CHTR, FSLR, GLW, GS, JPM, MRVL, ORCL, PFE, PGR, QCOM, SPY, T, URBN, YOKU
by: Insider Monkey

Maverick Capital was founded by Lee Ainslie in 1993 after spending 3 years working with Tiger Management’s infamous Julian Robertson. The “Tiger Cub” was just 29 at the time. Ainslie has since grown Maverick Capital to over $9.5 billion.

Ainslie specializes in equity positions and maintaining what he refers to as “significant critical mass”. He is a pure long/short equity investor; he doesn’t deal in bonds, currencies, options or commodities. Instead, Ainslie focuses solely on stocks that are undervalued and either selling his position quickly for a fast profit or holding the stock over the long term until the market becomes bullish about it.

Since its inception, Maverick Capital has bested the S&P 500 (NYSEARCA:SPY) by 6-7 percentage points each year, in spite of being 50% less volatile. However, as of late, Ainslie’s performance has begun to slip. His top 15 stock picks have had a negative 14.8% return since the end of last quarter, compared to a negative 10.7% in SPY.

Company

Ticker

Value (x1000)

Activity

Return Since June

CITIGROUP INC

C

446808

New

-32%

JPMORGAN CHASE & CO

JPM

441860

80%

-15%

MARVELL TECHNOLOGY

MRVL

438682

15%

-13%

CORNING INC

GLW

424703

20%

-22%

QUALCOMM INC

QCOM

422174

-5%

-12%

APPLE INC

AAPL

417750

4%

11%

APOLLO GROUP INC

APOL

415138

29%

2%

PFIZER INC

PFE

410739

-1%

-9%

FIRST SOLAR INC

FSLR

325457

New

-32%

YOUKU COM INC

YOKU

302173

New

-33%

DIRECTV

DTV

283564

-6%

-17%

PROGRESSIVE CORP OH

PGR

282401

0%

-14%

TIME WARNER CABLE INC

TWC

281652

80%

-18%

ORACLE CORP

ORCL

278661

New

-18%

URBAN OUTFITTERS INC

URBN

275227

40%

-8%

Click to enlarge

While part of this loss is attributable to recent volatility in the market, there may be another culprit at work – namely, bandwagon. Ainslie, who has a strong reputation as a savvy investor, seems to have jumped onto the bandwagon, buying up popular stocks. Ainslie bought a position in Citigroup and increased his position in JP Morgan when everyone else in the hedge fund market community was doing the same (check out the top 10 most popular hedge fund stocks).

Ainslie decided to adjust his positions in the financial services market when he sold out his position in the Goldman Sachs Group Inc. (NYSE:GS) after just one quarter (read about it here). Instead, last quarter, Ainslie increased his position in JP Morgan Chase & Co. by 80% and bought an obscenely large position in Citigroup Inc. His Citigroup position was his largest position at the end of second quarter at a value of $446.8 million. Time will have to tell on these positions; Citigroup has lost 32% since last quarter while JP Morgan lost 15 percent. Ainslie may be able to turn it around if he holds onto the stocks long enough.

Betting big on financial stocks seems to be somewhat of a trend since the collapse of the U.S. financial markets in 2008, but it has also yielded large losses. Big name hedge fund managers like John Paulson of Paulson & Co have lost hundreds of millions betting on finance stocks (see the hedge funds most affected here).

Since June, Ainslie’s only real successes in his top picks have been in Apple Inc., in which he gained 16%, and the Apollo Group Inc., in which he gained 8%. Apple needs no introduction; it is the most popular stock amongst hedge funds and a strong performer. The name “Apollo” however is not so well known. Pfizer and Urban Outfitters are also among Ainslie’s stock picks which outperformed the market since June.

Apollo Group is involved in the education market; specifically, they are responsible for the University of Phoenix. Of the hedge funds we track, Ainslie’s Maverick Capital owns 9.5 million shares. The only hedge fund to come close to that is Blue Mountain Capital with 181,000 shares (check out Blue Mountain here). While the difference is significant, both Maverick and Blue Mountain increased their position in the company last quarter, by 29% and 54% respectively.

We like Ainslie, but his performance over the last few years has left much to be desired. Historically, Ainslie has had losing years before (specifically 2003, 2005, 2009 and 2010), but it appears he is on a trend right now. Individual investors are cautioned against mirroring his actions as a result, unless you are ready to take a major gamble.

Disclosure: I am long C, SPY.