5 Stocks Loved by This Multi-Billion Dollar Quant Fund

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Apple (NASDAQ: AAPL) is the top stock pick among the hedge funds we track. Let's take a look at one money manager in particular that holds a stake in the tech giant.

AQR Capital was founded in 1998 by Cliff Asness and other former Goldman Sachs alums. AQR invests in public equities across the world and as of 2011 managed upwards of $44 billion. Asness graduated from the University of Pennsylvania with dual degrees in Economics and Engineering and also earned his MBA and ultimately his PhD in Finance from the University of Chicago. According to the Financial Times, AQR "takes a systematic, computer-assisted approach to investment involving both value and momentum factors" (Here’s the hedge fund’s entire collection of stock picks).

After reviewing AQR's most recent 13F, which is filed with the SEC quarterly and reveals the majority of public securities owned by the firm, we found that AQR was upping its shares in each of its top five holdings by at least 15%. Outlined below are AQR's top five holdings.

Apple saw AQR up its stake 16% during 3Q 2012 and it kept the tech stock as its number one 13F holding. Apple is expected to be a standout of the 2012 holiday season, thanks to new iterations of its iPhone and iPad. What should help drive Apple's industry-leading long-term expected EPS growth is its ability to continually introduce new products. This includes the potential launch of an iTV. The tech giant also has a solid balance sheet with no debt and a large cash position.

Apple has put some of this cash to work with a 2% dividend yield. The tech company has faced formidable competition in the mobile market, but still holds a solid position. IDC expects Apple's iPhone to own 17% of the smartphone market by 2015. The stock only trades around $525, but Wall Street's price target averages $740 and analyst Brian White of Topeka Capital Markets has a $1,111 price target on Apple.

In addition to Apple, two of AQR’s big picks are oil and gas giants, Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), ranking second and third, respectively, in AQR’s 3Q 2012 13F. AQR upped its stake by at least 20% in each energy company and has had the stocks in its top five for almost two years. Exxon plans to target production growth of 1%-2% per through 2016, with an asset base decline of 3% over the same time period.

A couple big initiatives for Exxon have been adding acreage in Bakken and Western Canada. Exxon has been performing well, helped by strong performance in its refining segment, not to mention a greater focus on upstream deep-water opportunities. Exxon's balance sheet remains robust with $13 billion in cash and $12 billion in debt. Recent quarterly results for 3Q 2012 also showed that cash flow continues to outpace capital expenditures, with $14 billion in cash flow compared to $9 billion in CapEx.

Chevron also managed to see cash flow ($26 billion) outpace CapEx ($21 billion) during 3Q. Chevron is targeting more robust production growth than Exxon at 4% through 2017. Chevron is also focusing on rearranging its operational structure; part of the restructuring includes the sell-off of some of its downstream operations. These plans to reduce its refining operations will allow the oil/gas company to focus on higher margin businesses, with plans to expand further into the liquid natural gas sector. Billionaire Ken Fisher, founder of Fisher Asset Management, is the top fund owner of those we track with over 3.5 million shares (check out Ken Fisher's newest picks).

Aside from Apple, Exxon and Chevron, what other stocks are in Asness' portfolio?

AT&T (NYSE: T) was the fourth largest 13F holding for AQR during 3Q 2012 and is also one of the top dividend plays around. AQR upped its stake in the wireless company by 27% during the quarter. Compared to major competitor Verizon, AT&T trades on the high end at a 1.5x P/S, compared to Verizon's 1x sales multiple. The big downside for AT&T is its continued battle for spectrum, especially since its bid to purchase T-Mobile fell apart.

We do remain cautious about the long-term prospects of AT&T with respect to service and coverage in its wireless segment. One positive for the wireless provider is that during 4Q 2012, it managed to sell a record 10 million smartphones, thanks in large part to Apple's iPhone 5. With over $40 billion in trailing twelve-month free cash flow, the wireless company should not have a problem funding its 5% dividend yield in the interim.

Wal-Mart (NYSE: WMT), the retail giant, finally broke into AQR’s top five holdings after the firm upped its stake by 18% during 3Q 2012. Wal-Mart and one of its top competitors, Target, trade relatively in line on a P/E and P/S basis, and both pay a 2.3% dividend yield. Wal-Mart's longer-term growth should come by way of greater international expansion and solid same-store sales growth. Same-store sales growth is expected to be up 2.3% in FY2013, thanks to a weak economy and the retailer's low-priced products. Warren Buffett is the top fund owner of those we track with over 46 million shares (see Warren Buffett's favorite stocks).

To recap: AQR is one of the many firms making big bets on Apple, but also has a couple key investments in the oil and gas industry. Other notable picks of AQR's include a dividend play in AT&T and a bet on the world's largest retailer.


This article is written by Marshall Hargrave and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. Meena has long positions in AAPL and T. The Motley Fool recommends Apple and Chevron. The Motley Fool owns shares of Apple and ExxonMobil. 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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