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Whitney Tilson's T2 Partners has seen poor performance over the past year. The fund lost 24.9% in 2011 and was among the 10 worst performing hedge funds in 2012. On January 31, T2 Partners released its January letter to investors. The situation somewhat eased up as the firm returned 12.6% in January, which far outpaced the S&P500's return of 4.5%, the Dow's 3.6%, and Nasdaq's 8.1%. T2 Partners made big in Netflix (NFLX), Pep Boys (PBY) and Goldman Sachs (GS), gaining 73.5%, 36.4% and 23.3%, respectively. Last month we covered Tilson's best performing stock picks in 2011. In this article we compiled a list of T2 Partners' top 10 stock positions as of the end of 2011. Some of Tilson's worst performing stock picks are among his top holdings and they are performing spectacularly this year.

Company

Ticker

Berkshire Hathaway

BRK.B

J.C. Penney

JCP

Citigroup

C

Howard Hughes

HHC

Dell

DELL

SanDisk

SNDK

Grupo Prisa

OTC:GPOPF

Goldman Sachs

GS

Netflix

NFLX

Microsoft

MSFT

T2 Partners stayed bullish about Berkshire Hathaway, even though the stock lost 4.7% in 2011, which accounted for 2.3% in losses to the fund. Tilson believes Warren Buffett is doing a great job in allocating assets and the firm projects a $172,000 intrinsic value per share, bringing a 50% upside potential. Tilson boosted his position in Berkshire on September 26 when Buffett announced an open-ended share repurchase program, saying "to repurchase Class A and Class B shares of Berkshire at prices no higher than a 10% premium over the then-current book value of the shares." We agree with Tilson that BRK is undervalued by much more than 10% and the stock did generate a better-than-market return since the end of the third quarter 2011.

One of the mega-cap financial stocks picked by Tilson's T2 Partners is Citigroup. T2 Partners believes Citigroup has a fair balance sheet and the company will be able to expand its presence in Europe as its competitors become weak. Citigroup was in 87 hedge funds' portfolios with a total investment of $5.8 billion, Q3 filings show. Bill Ackman's Pershing Square had more than 26 million shares of Citigroup at the end of September, while John Paulson and Bruce Berkowitz each had about 25 million shares of Citigroup. We are also bullish about the stock because we think downside risks are already priced in and Citigroup will outperform in the future. Citigroup has a low forward PE of 8.31 which is low compared to its peers. Besides Citigroup, Tilson is also invested in a few other financial stocks, such as Goldman Sachs Group, which he initiated a position during the third quarter.

Tilson picked DELL during the first quarter 2011. Currently DELL is T2 Partners' fifth largest stock position. T2 Partners probably bought the shares at around $15, and now the stock is trading above $18. David Einhorn's Greenlight Capital followed Tilson into DELL during the fourth quarter and bought the stock at an average price of $15.53, while Mason Hawkins' Southeastern Asset Management also had DELL as its largest position at year-end. According to Zacks, DELL is trading at a forward PE of 8.9 and has a nearly 6% EPS growth rate. We think DELL is undervalued and will be really a good long-term investment.

Other stocks with high upside potential that Tilson is bullish about include Microsoft, Activision Blizzard Inc (ATVI), Wells Fargo & Co (WFC), Cisco Systems Inc (CSCO), Xerox Corp (XRX), and Apple Inc (AAPL). We believe these stocks are all high quality cheap stocks with huge long-term potential.

Source: Whitney Tilson's Top Stock Picks