Growth-Oriented Hedge Fund Focusing on Google, Priceline
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At Insider Monkey, we track 450 of the world's most elite hedge funds, because as our research shows, the best equity holdings of the most talented money managers have had market-beating potential in the past. Our small-cap strategy beat the broader indices by 18% a year for more than a decade in our back tests, and since sharing these picks with the public, they've beaten the S&P 500 by more than 20% (learn how to use this market-beating strategy yourself).
In our fund-by-fund analysis system, we've given readers the ability to cruise through any of the equity portfolios we track, from Warren Buffett to David Einhorn. One particular money manager that flies under the mainstream media's radar is Christopher Lord's Criterion Capital. With over half of his $1.8 billion equity portfolio allocated to the technology sector, it's no secret which markets Lord and his investment team focus on, but it's still worth taking a look at his top five stock picks.
Interestingly, each member of this "fab five" saw Lord up his stake at the end of the fourth quarter. Sitting at No. 1 is Motorola Solutions (NYSE: MSI), as it has for four consecutive quarters. The hedgie increased the size of his Motorola position by 17% in Q4, and aggregate hedge fund interest remained flat over this period. Thirty-five of the funds we track are bullish on Motorola, including Jeffrey Ubben, George Soros and Leon Cooperman (see Cooperman's full equity portfolio), in addition to Lord. Since the start of 2013, Mr. Market has rewarded Lord's bullishness, pushing Motorola up more than 13%, and in addition to this appreciation, shares sport a solid dividend yield of 1.6%.
Google (NASDAQ: GOOG), meanwhile, sits at No. 2 in Lord and Criterion Capital's equity portfolio, as the hedgie upped his stake by 35% last quarter. Like Motorola, shares of the tech giant have generated handsome returns year-to-date, popping 18.5%. On the whole, Google is the smart money's third favorite stock pick, behind Apple and AIG. Heading into 2013, 126 of the funds we track were bullish on Google, including Rob Citrone and David Einhorn (check out Einhorn and Greenlight's profile), who each established new positions.
Now trading solidly above the key psychological level of $800 per share, Google's stock price is nearly at par with most analyst estimates, but shares still aren't particularly expensive at 15.7 times forward earnings and a PEG of 1.8. The sell-side's EPS growth forecast, which predicts annual bottom line expansion of 14-15% a year through at least 2017, is significantly above key peer Microsoft by about six percentage points. It's easy to see why Lord is bullish.
Priceline.com (NASDAQ: PCLN) is the hedge fund manager's third largest equity holding, after he upped his stake by 27% in Q4. Other hedgies increasing their stakes in this online travel giant last quarter include Steven Cohen, Louis Bacon and Cliff Asness, the manager of AQR Capital Management. Generally speaking, Wall Street's average price target on Priceline indicates that an upside of 13-14% is expected from current levels, and a solid return in 2013 (+15.8%) has already made mimicking Lord quite profitable.
Going forward, we'd note that although hedge funds' interest in Priceline fell by 13% last quarter, the stock still fell to 25th in terms of overall popularity, ahead of typical smart money stalwarts like Coca-Cola and Amazon. This sentiment is definitely worth taking into account when considering Priceline's investment prospects, which are primarily attractive to growth-oriented investors. The Street's EPS estimates--19% annually for the next five years--trump 89 of the 95 other S&P 500-listed services stocks.
Adobe Systems (NASDAQ: ADBE) and Wynn Resorts (NASDAQ: WYNN), lastly, sit at No. 4 and 5 in Lord's equity portfolio, rounding out his top five. The hedge fund manager increased his stake in Adobe by 33% last quarter, while he upped the size of his Wynn Resorts position by 13%. Interestingly, both stocks have similar levels of hedge fund interest, with the total number of bullish funds in the mid-thirties. Billionaires Ken Griffin and Israel Englander each hold Adobe and Wynn, giving Lord some pretty enviable company.
Like Priceline, the crux of this duo's bullish thesis comes down to momentum rather than value, as each stock is expected to sport double-digit earnings growth over the next half-decade. While Adobe does not offer a dividend, Wynn's yield of 3.4% places it No. 1 amongst its peers in the resorts & casinos industry, which is the proverbial icing on this cake.
Judging by the solid growth prospects and recent appreciation of each member of this "fab five," it's easy to understand that one of the main driving forces behind Christopher Lord and Criterion Capital's philosophy is momentum, rather than value or income. For those who employ this particular strategy on a regular basis, this hedgie's equity portfolio may be a good place to parse down the market when searching for new investment ideas.
This article is written by Jake Mann and edited by Meena Krishnamsetty. Meena has a long position in GOOG. The Motley Fool recommends Adobe Systems, Google, and Priceline.com. The Motley Fool owns shares of Google and Priceline.com. 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!