A $3 Billion Hedge Fund's Top Stock Picks
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Roberto Mignone established Bridger Management in July 2000, right before he turned 29 years old. Prior to that, he co-founded Blue Ridge Capital with John Griffin in 1996 and worked at Julian Robertson’s Tiger Management LLC. Mignone’s strategy is to focus on a few positions and monitor them carefully. Mignone’s core positions include about 30 long positions, which are each limited to 5% of the portfolio initially and never get larger than 10%.
Mignone recently released the latest holdings of his Bridger Management in a 13F filing. Let’s take a closer look at the most bullish bets and decide whether investors should imitate these stock picks.
Google Inc (NASDAQ: GOOG): GOOG is the largest position in Mignone’s latest portfolio. At the end of last year, Bridger Management reported to own $122 million worth of GOOG shares. Not surprisingly, GOOG is a popular stock among hedge funds tracked by us -- there were 96 hedge funds with GOOG positions in their 13F portfolios at the end of the third quarter last year, including two other Tiger Cubs, Chase Coleman and Stephen Mandel. Coleman’s Tiger Global Management and Mandel’s Lone Pine Capital both had about $500 million invested in this stock. Ken Fisher and John Griffin were also in favor of GOOG.
We agree with these hedge fund managers. Google has been expanding in multiple areas, including social media and display advertising. It also has robust revenue growth, expanding profit margins, and reasonable valuation levels. GOOG looks undervalued compared with its peers. The main competitors of GOOG are Yahoo Inc (NASDAQ: YHOO) and AOL Inc (NYSE: AOL). GOOG’s forward P/E ratio is 12.09 and it is expected to grow at an average of 18.75% annually in the next five years. This means that GOOG’s 2014 P/E ratio is 8.6, versus 12.5 for YHOO and 19.96 for AOL.
GOOG is not the only tech giant with a low valuation accounting for a large position in Mignone's portfolio. As of Dec. 31, Bridger Management had $77 million invested in Apple (NASDAQ: AAPL), which is also very popular among hedge funds. At the end of September, there were 125 hedge funds disclosed owning AAPL in their 13F portfolios, including Tiger Cub Stephen Mandel, along with big names such as David Einhorn, John Griffin, Andreas Halvorsen, and Jim Simons.
We like AAPL as well. It has a forward P/E ratio of 10.58 and it is expected to grow at 18.76% on the average over the next five years, which indicates that its 2014 P/E ratio is only 7.50. Investors value utility stocks at about 13-14 times their earnings, while tech stocks with much higher growth rates are valued at almost half of these multiples. Hedge funds noticed this opportunity and enjoyed strong gains from AAPL last year. The stock returned over 38% over the past 52 weeks, outperforming the S&P 500 index by more than 34 percentage points. We think it is not too late to buy AAPL. We believe it will continue to be a winner in the future.
A few other large positions in Mignone’s portfolio include United Rentals Inc (URI), DirecTV Group Inc (DTV), and Morgan Stanley (NYSE: MS). All three stocks are trading at low multiples and have double-digit expected growth rates. MS has a forward P/E ratio of 8.12 and is expected to grow at over 10% annually in the next five years, so its P/E ratio for 2014 is about 6.7. MS’ major competitor, Goldman Sachs & Co (GS), also has a low 2014 P/E ratio of about 7.0. We like MS. Its management team is taking steps to further lower the risk of the company’s business. MS is another hedge fund favorite. There were 38 hedge funds with MS positions at the end of September. Besides Mignone, Eric Mindich was also bullish. His Eton Park Capital had over $300 million invested in this stock.
Overall we like Mignone’s stock picks. We especially like his bets on attractively valued tech giants. We see great potential in these tech stocks with low valuations.
Motley Fool newsletter services recommend Apple, Google and Yahoo!. The Motley Fool owns shares of Apple, Google and Yahoo!. Meena Krishnamsetty has a long position in Morgan Stanley. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.