Dallas, Texas-based hedge fund Maverick Capital, headed by Guru, Tiger Cub and Star Manager Lee Ainslie, manages $7.6 billion in U.S. equity assets, as per its most recent SEC 13-F filing for the September 2011 quarter (for a detailed profile of the fund and Mr. Ainslie, look at the end of the article). Like funds run by most Tiger cubs, Maverick runs a long/short equity fund that employs a bottom-up, fundamental approach in making its investments, that is to say, that they are stock pickers seeking value and growth buys. This contrasts with the top-down, macro, quantitative and other approaches used at many other hedge funds.
The following are select under-valued companies that Maverick Capital is bullish on based on its Q3 filing (see Table):
Wells Fargo & Company (WFC): WFC is a diversified financial services holding company with 9,000 offices primarily in the U.S., and provides retail, commercial and corporate banking services. At $285 million and unchanged in Q3, this is Maverick’s fifth largest position in the portfolio. WFC is also undervalued, trading at 9.4 P/E on a TTM basis, and at 1.1 P/B, compared to the averages of 11.3 and 1.2 respectively for its peers among money center banks. Besides Maverick, other major funds that are bullish on WFC per their September filings include Goldman Sachs Group adding 15.8 million shares to their prior 0.5 million shares, and Highbridge Capital Management that added 6.2 million shares to its 0.3 million prior share position.
Citrix Systems Inc. (CTXS): CTXS develops online application virtualization, networking and performance management software. Maverick added a new $270 million position in Q3, their third largest purchase in the quarter. CTXS is undervalued, trading at 25 forward P/E while earnings are projected to increase at a compound 15.6% annualized rate from $2.08 in 2010 to $2.78 in 2012, compared to an average of forward 34.4 P/E for the its peers in the computer software group. Also, it trades at a 4.8 P/B and at 18.7 P/CF, compared to the averages of 3.8 and 57.4 respectively for the peer group. Besides Maverick, other major funds that accumulated CTXS shares in Q3 include Viking Global Investors that added a new 2.9 million share position, and Goldman Sachs Group that added 1.8 million shares to its 0.3 million share prior quarter position.
Corning Inc. (GLW): GLW manufactures glass substrates for LCDs, optical fiber and cables for communications, and ceramic pollution control products. Its LCDs are used in high-performance displays for TVs and smartphones, including in the venerable iPad. At $380 million, including the $40 million added in Q3, this is Maverick’s largest position. GLW is undervalued, trading at less than 7 P/E on a trailing-twelve-month (TTM) basis, at 1.1 P/B, and at 6 P/CF compared to the averages of 14.1, 1.2 and 9.2 respectively for its peers in the communications components group. GLW is down more than a third below its $23 peak in February, mainly on account of weakness in its display technologies segment. Besides Maverick, other major funds that accumulated GLW shares in Q3 include Manning & Napier Advisors that added a new 16.9 million share position, Yacktman Asset Management that added 7.3 million shares to a 3.3 million share prior quarter position, and Oakmark Funds/ Harris Associates that also added a new 5.7 million share position in the company.
Macy’s Inc. (M): Macy’s operates approximately 850 Macy’s and Bloomingdale’s department stores in 45 states, D.C., Puerto Rico, and Guam. Maverick added a new $127 million position in Q3, among their third largest purchases in the quarter. Macy’s is undervalued, trading at less than 10 forward P/E, while earnings are projected to increase at a compound 22.1% annualized rate from $2.12 in 2010 to $3.16 in 2012, compared to an average of forward 13.2 P/E for the its peers in the regional department store group. Also, it trades at a 2.2 P/B and at 7.3 P/CF, compared to the averages of 1.6 and 7.4 respectively for the peer group. Besides Maverick, other major funds that accumulated Macy’s shares in Q3 include First Eagle Investment Management that added a new 3.3 million share position, and Invesco Ltd. that added 5.5 million shares to its 14.7 million share prior quarter position.
Besides the undervalued positions listed above, Maverick is also bullish on casino resort operator Las Vegas Sands Corp. (LVS), in which it added a new $39 million position; and Chinese internet portal and media content and services company Sina Corp. (SINA), in which it added a new $46 million position. Select stocks that Maverick is bearish on (see Table) include biotech Gilead Sciences Inc. (GILD), in which it dropped its $124 million prior quarter position; semiconductor designer Marvell Technology Group Ltd. (MRVL), in which it almost cut in half its $424 million prior quarter position; and Apple Inc. (AAPL), in which it cut $288 million from a $465 million prior quarter position.
Table
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Ainslie, like Guru Stephen Mandel at Lone Pine Capital LLC and Guru John Griffin at Blue Ridge Capital Holdings LLC is a Tiger Cub, meaning that he honed his investment skills while working for legendary hedge fund manager Julian Robertson at Tiger Management LLC. Mr. Ainslie like his peer Tiger Cub and Guru Mr. Griffin earned his undergrad degree from the University of Virginia, and he got his MBA from University of North Carolina. Besides the headquarters in Dallas, the firm also has an additional office in New York where Mr. Ainslie is based out of.
Maverick Capital is a long/short equity hedge fund and employs a bottom-up, fundamental approach in making its investments. In the period from 1995-2009, Maverick Capital returned a cumulative 618% or 14.2% compounded return versus a cumulative 314% or 10.3% compounded return for the S&P 500. The fund holds a moderately diversified portfolio of 91 positions, and almost two-thirds of their holdings are in large-caps, another quarter are in mid-caps, and small-caps account for the remaining 10%-15% of their holdings. Their portfolio turnover is around 65% implying an average holding period of eighteen months. Based on the most recent SEC 13-F filing for the March 2011 quarter, we determined that their portfolio is over-weight technology (34%) and services (26%) sectors, and it is under-weight energy (2%) and basic materials (0%) sectors.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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