Apple and More High Upside Potential Stocks from Billionaire Julian Robertson

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Julian Robertson is a legend in the hedge fund community for his fund’s excellent performance (which made him a billionaire) and for Robertson’s own success in producing “Tiger Cub” hedge fund managers who have gone on to be successful themselves. We have gone through Robertson’s recent 13F filing (see the full list of his stock picks) looking for stocks with a high upside potential. We did this by considering each stock’s PEG ratio, which divides the P/E multiple by the expected growth rate of earnings; while earnings predictions of course aren’t always accurate, we think that this type of analysis can be useful in picking out stocks for further research. Here are five stocks Robertson had over $5 million invested in at the end of the third quarter and which have low PEG ratios:

One of Robertson’s picks was Sirius XM Radio (NASDAQ: SIRI); he increased his holdings by 16% last quarter, to a total of 5.9 million shares. Sirius’ revenue was up 14% in the third quarter compared to the same period in 2011, though net income was down sharply. We’d also note that there is considerable short interest in the stock, so investors should not put too much emphasis on the PEG metric; a number of market players think it’s overvalued at these prices. Fellow billionaire Leon Cooperman’s Omega Advisors was another buyer during the third quarter (find more stocks Cooperman was buying).

American International Group (NYSE: AIG) was the third most popular stock among hedge funds during the third quarter of the year (see the most popular stocks) after not having made the list at all three months earlier. Robertson reported owning about 520,000 shares of the insurer. AIG trades at 10 times forward earnings estimates, and analysts expect net income to grow over the next several years, making it look appealing to value investors. We also like that it is trading at half the book value of its equity; even though we probably would value the stock at a discount to book value, it would be a smaller discount than that.

The most popular stock among hedge funds was Apple (NASDAQ: AAPL), and this was Robertson’s largest 13F position by market value at the end of the quarter, as he owned just over 100,000 shares. Apple carries trailing and forward P/E multiples of 12 and 9, respectively, and posts a five-year PEG ratio of 0.5. It looks to us like the analyst consensus strongly favors high earnings growth, while investors seem to be assuming that Apple won’t be able to grow its bottom line at all going forward. We’d look for moderate growth at the company, so while we’re not as bullish as the sell-side, we’d consider it a buy. Billionaire Dan Loeb’s Third Point was buying Apple last quarter.

Robertson liked Ocwen Financial (NYSE: OCN), with his position of about 760,000 shares being 68% larger than it was at the beginning of July. Millennium Management, which is managed by billionaire Israel Englander, had also been buying the stock. Ocwen is a savings and loan company whose stock price has more than doubled in the last year. The forward P/E multiple is 8, and the five-year PEG ratio is 0.6; it may be worth taking a closer look at the company.

$550 million market cap Chinese mapping and navigation company AutoNavi Holdings (NASDAQ: AMAP) had its earnings increase 9% last quarter versus a year earlier, but revenue rose at a greater rate and Wall Street analysts apparently expect growth to continue: At 17 times trailing earnings, the stock’s PEG ratio is 0.7. Robertson actually had the largest position of any hedge fund or notable investor in our database of 13F filings, at about 520,000 shares. It may be too small for hedge fund managers to notice (though it looks to have over $1 million in daily dollar volume) or investors may be avoiding Chinese companies.


This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in Apple. The Motley Fool owns shares of American International Group and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend American International Group and Ocwen Financial. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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