Guest Post By: Insider Monkey
Insider Monkey tracks nearly 400 hedge fund managers and prominent investors. Thirty nine of these fund managers are billionaires. Nowadays readers have access to websites that track the daily changes in billionaires’ wealth. We wanted to track the performance of billionaires’ top stock picks. By looking at our Billionaire Hedge Fund Index, investors may be able to decide whether it makes sense to imitate billionaires’ stock picks without paying them hefty fees. Warren Buffett, George Soros, John Paulson, Jim Simons, David Einhorn, Ray Dalio, and T. Boone Pickens are among the 39 billionaires we’re tracking. Billionaire fund managers’ top 30 stock picks returned 16.7% in 2012 as of March 16, vs. 12.3% gain in the S&P 500 ETF (SPY). Here are the top 7 stocks they’re crazy about:
1. Apple (AAPL) is the most popular stock among billionaire fund managers. Nearly half of them had a large position in Apple at the end of December. Apple is also the most popular stock among “ordinary” millionaire hedge fund managers (see the 10 most popular stocks). The stock gained 45% this year as of March 16th. We have been extremely bullish about Apple since we started writing here at Trading Deck at the end of September. Apple was the most popular stock among hedge funds at the end of September as well. We have been telling you that technology stocks are extremely undervalued as a sector and Apple had single digit forward PE multiple at the time. Today we are still very optimistic about the stock. Its 2012 forward PE ratio is 13.5 which is still less than the market. This is a stock that is expected to increase its earnings by nearly 20% per year over the next 5 years. It should easily trade above $800 over the next couple of years. Ken Griffin had the largest position in Apple at the end of December.
2. Google (GOOG) is the second most popular stock among billionaire hedge fund managers. The stock had a disappointing performance so far in 2012, losing 3.2% as of March 16. We are optimistic about Google as well. The stock’s 2012 forward PE ratio is 17 which is more than 25% higher than that of Google’s. They have similar expected growth rates though. We think Google deserves a slight premium over Apple because it is less exposed to competition from other search engines. This is not a stock that will go up 50% this year but it should deliver healthy returns over the long run. Julian Robertson and his tiger cubs Stephen Mandel and Chase Coleman are the most bullish fund managers about Google. We should note that Chase Coleman has an excellent track record of picking winners in the internet space and he made more than $1 billion for his investors by betting on Facebook in its infancy (check out Chase Coleman’s other internet stocks).
3. El Paso Corp (EP) is the third most popular stock among billionaire hedge fund managers. Carl Icahn made a bundle in EP by investing more than a $1 billion before its merger with Kinder Morgan was announced. He had $1.9 billion invested in the stock at the end of December. The other fund managers were pursing El Paso as a merger arbitrage candidate. These stocks usually trade at a discount to their announced merger price because investors usually aren’t 100% certain that the merger will go through as planned. Billionaire hedge fund managers made 9.6% since the beginning of this year by correctly betting that El Paso – Kinder Morgan deal will go through.
4. News Corp (NWSA) is the fourth popular stock among billionaire hedge fund managers. When other investors were dumping News Corp shares because of the hacking scandal billionaire hedge fund managers were buying them. The stock recovered all of its loses last summer. It is also slightly outperforming the market this year. Paul Singer had the largest position in NWSA among the billionaires we are tracking.
5. Medco Health Solutions (MHS) is the fifth popular stock. This is also a merger arbitrage play. The stock returned 25.7% this year as of March 16. D. E. Shaw had more than $300 million invested in the stock.
6. Microsoft (MSFT) is the sixth most popular stock among billionaire hedge fund managers. Ken Fisher and David Einhorn had the largest stakes in the stock. Last May at the Ira Sohn Conference David Einhorn called for the resignation of Steve Ballmer and stated that Microsoft is significantly undervalued. The stock gained 38% since then (read the transcript of Einhorn’s presentation).
7. Wells Fargo (WFC) is the seventh most popular stock among billionaire fund managers. The stock’s 2012 gains are around 23.4%, ten percentage points more than the S&P 500 index. Warren Buffett has the largest stake in this banking giant at the end of December. There were 9 other billionaire fund managers with Wells Fargo positions.
Insider Monkey has 30 stocks in its Billionaire Hedge Fund Manager Index and these 30 stocks (see the entire list here) had an average return of more than 16% this year as of March 16. The top 7 stocks that we discussed above performed even better. Five of these seven stocks outperformed the market and they had an average return of 19.9%, vs. 12.3% for the SPY. It is too early to turn this into a trading strategy, but tracking this index is going to be more fun than tracking billionaires’ wealth every 15 minutes.