3 Stocks Loved by Billionaires

Shas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Many people want to conjure up portfolios on the basis of stocks that billionaires invest in, in the hope that if it was good for Warren Buffett or a hedge fund manager like David Tepper, it is good for them too.

Last week I did a bit of research to find three stocks that billionaires love. I must admit that it was not as easy as it sounded. It required much more than surfing through 13F statements filed with SEC. I found that there were a whole lot of stocks that billionaires love, but that does not mean that they are always long on them. Hedge fund managers, for example, often "love" to go short on some stocks, just to beat them down for one reason or the other.

I have shortlisted the following three, not necessarily in order of billionaire preference: QUALCOMM (NASDAQ: QCOM), Macy's (NYSE: M) and News Corp (NASDAQ: NWS) :

QUALCOMM

One would think that Apple (NASDAQ: AAPL) would be the first one in my list. It isn't. While Apple is, or should I say, was, indeed the preferred choice of billionaires last year, things seem to have turned round. Apple has lost almost 15% in January and is now trading near its 52-week low of $435. Qualcomm, on the other hand, is going strong and has given 8% YTD return to investors; is trading near its 52-week high.

The next story of tech companies is being written in the emerging markets, where Apple does not sell very well. Read more about it here. Moreover, if news reports are to be believed, QCOM may become the supplier of processors for a low-end iPhone that Apple may come up with for emerging markets.

Qualcomm is a major supplier of software and system software. It is also a developer of technology through research (sometimes through acquisitions). Patented echnologies developed by Qualcomm are required for upgrading networks to 3G and 4G capabilities and for makers of smartphones and tablets.

The company maintains excellent cash flows and reported a jump of more than 26% in revenues last year. It reported revenue (trailing twelve months) translating into almost $12 per share. The company operates on a healthy profit margin of 32.33% and has a book value of 20.59 per share. YOY quarterly earnings have been growing at 36%.

QCOM reported its quarterly figures last week. It surprised analysts by reporting GAAP EPS of $1.26, which was almost 12% more than what the analysts were expecting.

Qualcomm is very likely to benefit from a forceful tailwind as Android phones grab an even bigger chunk of market share as most of them are run on the Snapdragon chip developed by it. The company is expected to report an earnings growth of 17.44% in fiscal year 2013 and 15.42% in the long term (five years).

Financial data in this section on Qualcomm, unless otherwise mentioned, sourced from www.finance.yahoo.com.

Macy's

One would think that Macy's is a favorite with billionaires because they like to keep company with the like-minded -- Macy's being a high-end retail organization. Jokes apart, it is about a well established dividend paying company that is writing its growth story all over again. Macy's has withstood economic slowdown pressure much better than others, mostly because its high-end customer base is insulated from the broader economy. In the last five years, the stock has appreciated more than 40%.

Macy's operates brick and mortar as well as online stores under two brands, Macy's and Bloomingdale's. The company is engaged in the marketing of a vast range of consumer merchandise in 45 states, District of Columbia, Guam and Puerto Rico.

Macy is slated to release its quarterly earnings report on Feb. 26. Results for the most recent quarter, period ending Oct. 27, 2012, surprised analysts when they reported EPS of $0.36, which was 24.14% more than the consensus forecast. Macy's has been beating street expectations consecutively for the last four quarters. For the fourth fiscal quarter ending Jan. 27, 2013 analysts forecast an EPS of $1.95. Macy's dividend payout is $0.80 per share, which is paid on a quarterly basis.

The holiday season has been good this year. There has been a sizable overall increase (27%) in online traffic to top 500 e-stores. Macy's ranked number five with 1.95 million visits on Dec. 25, 2012. The company is expected to beat market expectation this time and also meet growth forecasts.

Analysts see 17.26% growth in Macy's earnings in 2013, 12.56% in 2014 and 10.9% over the next five years. At $39.51 the stock is trading 12.5 times trailing earnings and only 10 times forward earnings. Considering the company's growth prospects and a price/earnings to growth ratio (PEG ratio) of 0.88, this suggest that the stock is undervalued. It is no wonder then that Macy's Board of Directors increased the company's share buyback authorization by $1.5 billion in December.

News Corp

News Corp is the last on my list, and its selection may jolt investors who were out selling the stock in July/August 2011 when it was languishing between $15 and $16. That was the time when the billionaires got in. The stock has appreciated almost 75% since then. On Jan. 28, when the stock closed above $27.50, Morgan Stanley upgraded NWSA and set a price target of $32.

News Corp is a global media giant that operates in six segments: Cable Network Programming, Filmed Entertainment, Television, Direct Broadcast Satellite Television, Publishing and Other. The company is investing $1 billion in securing digital content for its book and newspaper publishing segment, which is slated for a split-off into a separate entity, a corporate action that never fails to interest hedge fund managers.

News Corp is a media conglomerate whose holdings include Fox News, The Wall Street Journal and Twentieth Century Fox. The company reported quarterly EPS of $0.43 for the fiscal quarter ended September 2012 and is expected to grow at an annual average growth rate of 17.15% in the next five years. Growth in FY 2013 is expected to be 21.36%.

Summary

Many high net worth individuals sometimes make investments for reasons not very well known. Some of them are logical while others simply do not make sense.

A billionaire might invest in a company that has a good growth potential but is exposed to a risk element. To cover that risk, he may also buy into a company that is exploiting the risk. A very recent example is that of Mark Cuban buying Vringo to hedge his bets in companies that were exposed to risk of intellectual property infringement.

Sometimes billionaires and hedge fund managers act on their bloated egos. Over the past few days, two of the richest men in the country, Carl Icahn and Bill Ackman, have been at war, not only on CNBC but also in the market. While Ackman is shorting Herbalife, a diet pill company, Icahn is betting against him. These are risky games that billionaires play. To short a stock one has to borrow it first and then sell it in the hope of buying it back at a lower price before returning it to the original owner. While a stock can go down only to an extent, the upside is unlimited.

The point I am trying to make is that before making an investment decision on the basis of a billionaire's "love' for a stock, take time out to read the full story first.


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