By Guan Wang
Tiger Cubs are doing quite well this year. John Thaler, Stephen Mandel, Chase Coleman, and John Griffin are all amongst the best performing hedge funds we track. The legendary Julian Robertson is at the top of the Tiger Cubs family tree. He is the founder of Tiger Management and has cultivated a number of successful money managers, including John Griffin. Second in command at Tiger Management, Griffin left Tiger in 1996 and founded his own firm Blue Ridge Capital, a long/short equity hedge fund with a long bias. Both Robertson and Griffin reported their 13F holdings as of March 31, 2012 in mid-May.
What stocks are they both bullish about?
Robertson Value ($*1000)
Griffin Value ($*1000)
H C A HOLDINGS
Top two stocks both managers love are two tech giants, Apple Inc. and Google Inc. These two stocks are also the most popular stocks amongst the 350+ hedge funds we track (see the 10 most popular stocks). At the end of the first quarter, there were 134 hedge funds with Apple positions and 115 hedge funds with Google positions in their 13F portfolios. In total, they invested $22 billion in the $540 billion market cap Apple and $12 billion in the $190 billion Google. Tiger Cubs showed great interest in these two tech giants. For example, Stephen Mandel, Chase Coleman, and Lee Ainslie were all invested in both stocks at the end of March.
We love Apple and Google. They have strong growth potential - their expected earnings growth rates are around 20%, but, unlike most growth stocks, their multiples are not high. Apple is priced at 14X its 2011 earnings and Google's current P/E ratio is about 18. Robertson and Griffin have already made a bundle from their positions in Apple as the stock has soared 43% so far this year. We expect Apple will continue to be a winner in the future. On the other hand, Google is down 10% since the beginning of 2012, but we expect the stock will deliver decent returns in the long run.
Over the first quarter, Robertson opened a few new positions. HCA Holdings and VeriSign Inc. are two examples. Griffin likes these two stocks as well, boosting his stakes in both positions during the first quarter. VeriSign is also a technology stock. It also has a double-digit expected earnings growth of 13.75%, but its valuation level is much less attractive compared with Apple or Google - it is priced at nearly 40X its 2011 earnings. The good news is that the company has been focusing on stock repurchases, which will boost its EPS. It currently has about $1 billion stock repurchase authorization. It also has a record of paying special dividends. In December 2010 and May 2011, VeriSign paid special dividends of $3 per share and $2.75 per share respectively. VeriSign is also quite popular amongst hedge funds in general. Thirty hedge funds reported owning the stock at the end of March, including Jim Simons. His Renaissance Technologies had nearly $60 million invested in this stock at the end of the first quarter (check out Jim Simons' top stock picks).
HCA is a healthcare stock. Robertson and Griffin together had nearly $200 million invested in this stock at the end of March. HCA completed the purchase of its HealthOne joint venture last year, which is expected to bolster its revenues in 2012. This will be offset somewhat by the declining number of surgeries and the cuts of Medicaid rate, which are likely to pressure its margins. Overall, the company is expected to enjoy an earnings growth of 11% per year over the next couple of years. It is attractively priced at 6.8X its 2013 earnings, a significant discount to the industry average of 12. On the other hand, the company has $28 billion worth of total debt on its balance sheet as of March 31, 2012, versus only $471 million cash and equivalents, but it has already reduced its outstanding debt by around $2.5 billion through IPO in March 2011. A number of hedge fund managers like HCA. Counting Robertson and Griffin's funds, there were 41 hedge funds with positions in the company at the end of March, up from 33 hedge funds at the end of the prior quarter. John Paulson's Paulson & Co was amongst those hedge funds that initiated a new position in HCA during the first quarter, opening a position worth $40 million (see John Paulson's favorite stock picks).
Robertson and Griffin are also both bullish about Liberty Global Inc. We do not recommend the stock though. It is trading at nearly 40X its 2012 earnings. It also has a high leverage and weak ability of meeting liquidity needs. Its debt-to-equity ratio of 9.95 is above industry average and its current ratio of 0.77 indicates that the company may have problems covering its liquidity needs.