By Guan Wang
Andreas Halvorsen has a great track record. His Viking Global Equities finished 2011 by returning around 8% while, in comparison, the average hedge fund was down about 5% over the past year, but then again, this Tiger Cub has a strong record of success.
Halvorsen left Tiger Management to start Viking Global in 1999 with two other Tiger employees. The fund returned an astonishing 89% its first year. It went on to beat the market by over 100% from 2005 to 2010. The fund only lost 1.9% during the tough financial period in 2008, but recovered the loss by returning 20% in the following year. Halvorsen recently released his 13F holdings as of the end of March. Let's take a closer look at his latest bullish bets (check out Andreas Halvorsen's entire portfolio).
Over the first quarter, Halvorsen significantly increased his position in Cisco Systems Inc (CSCO), by 335% to be exact. He had $683 million invested in Cisco, the top position in his portfolio, as of March 31, 2012. Cisco is also a popular stock amongst the hedge funds we track. Sixty-six hedge funds reported owning Cisco in their 13F portfolios at the end of the first quarter. First Eagle Investment Management had $880 million invested in the stock at the end of the first quarter. Ric Dillon, Bill Miller, and Dan Loeb also each had over $100 million invested in Cisco (check out billionaire Dan Loeb's top stock picks).
We like Cisco. The company is currently trading at 12X its 2011 earnings, a discount to its industry's average current P/E ratio of 22. Cisco's EPS in the past fiscal year was lower compared with the previous year ($1.16 vs. $1.32), but, in the most recent quarter, the company reported EPS of $0.4 per share, up 21.2% from $0.33 per share for the same period a year ago. We think Cisco's EPS will be growing over the next couple of years. Its EPS is estimated to be $1.66 in 2012 and $1.73 in 2013, versus $1.16 per share in 2011. Analysts expect Cisco's earnings to grow at 7-8% annually over the next few years. In addition to earnings growth, Cisco also has attractive margins. Plus, it has a very high gross profit margin of above 60% and a net profit margin of around 20%. Cisco also has strong cash flows. Its price-to-cash-flow ratio of 8 is lower than most of its competitors and its own historical average.
Over the first quarter, Halvorsen also initiated a $675 million position in Google Inc (GOOG). He did not disclose owning a single share of Google at the end of the previous quarter, but the stock was the fund's second-largest position at the end of March. Over the first quarter, Jim Simons' Renaissance Technologies, who is also a fan, largely increased his bets on Google by over 400% to nearly $300 million (see billionaire Jim Simons' top stock picks). Google underperformed the market in the first few months this year, but we think the loss will be reversed in the future. Therefore, it seems to be a smart move for Halvorsen to purchase Google at cheap prices in the first quarter.
Halvorsen reduced his stakes in Apple Inc (AAPL) by 87% to just $104 million during the first quarter. A few other hedge fund managers also sold large stakes in Apple over the first quarter, including Steve Cohen. His SAC Capital Advisors reduced its position in Apple by 95% (check out Steven Cohen's top stock picks). But, this doesn't necessarily mean that Apple is no longer a good investment. We think the reason these managers sold Apple is that they wanted to pocket the profit. Apple was once trading at above $600 per share in late March; most hedge funds bought Apple at prices much lower than that. For instance, Halvorsen bought $430 million worth of Apple shares in the third quarter last year and increased his stakes by 14% over the fourth quarter, when the stock was only trading at around $400.
Apple is still the most popular stock among the hedge funds we track. There were 134 hedge funds with Apple positions in their 13F portfolios at the end of March, up from 130 hedge funds at the end of 2011. Google is the second most popular stock, with 115 hedge funds reporting to own this stock.
Both Apple and Google are trading at attractive multiples and have strong growth potential. Apple is trading at 10X its 2013 earnings while Google's 2013 P/E ratio is 13.4, and both companies have double-digit expected earnings growth rates. Apple's earnings are expected to grow at 21% whereas Google's earnings are expected to increase at a rate of 18%. It seems the numbers favor Apple more, but it is hard to say which stock is going to beat the other over the long term. After all, they are not direct competitors. Overall, we are bullish about both stocks.
Other large positions in Halvorsen's portfolio include Invesco Ltd (IVZ), LyondellBasell Industries NV (LYB), and MasterCard Inc (MA). Halvorsen reduced his stakes in Invesco by 5%, but he increased his position in both LyondellBasell and MasterCard. Both Invesco and LyondellBasell have attractive multiples. Their current P/E ratios are both below 15. MasterCard is trading at relatively high multiples compared with these two stocks, but we still think MasterCard is a good investment considering its high expected growth rate of over 15%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
