Apple, Key Corp.: We’re Watching This Hedge Fund

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

Apple (NASDAQ: AAPL) is one of the smart money’s favorite stocks, and despite its selloff in recent months, it was still one of the most popular investments among the managers we watch heading into 2013. Yes, AIG overtook Apple at the end of last year—in terms of short-term appreciative performance and popularity—but it’s still worth pointing out which hedge fund managers hold Apple in their portfolios.

An Apple bull

One of the funds on our radar screen is Sirios Capital, managed by John Brennan. Mr. Brennan’s $571 million equity portfolio is primarily split between the technology, services, and financial sectors. His top five stock picks account for nearly 30% of the Sirios 13F-attributable portfolio, and range from banking to blue chips.

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Let’s have a look at Sirios Capital’s five favorite stocks.

Apple is Mr. Brennan’s fifth-favorite stock. Apple comprises 4.59% of the Sirios equity portfolio. As everyone moderately attuned to the world of finance knows, Apple’s stock price has dropped precipitously since last fall, and is down nearly 30% over the past year. However, Apple’s ROI and ROE values are nearly double the industry averages, at 32.96% and 38.41%, respectively—compared to 14.93% and 15.52%. Apple also currently presents a 2.39% dividend yield, and many analysts expect this yield to increase by the end of the current year.

In addition to favorable return ratios, Apple is also one of the cheapest stocks in the tech industry, as well as one of Wall Street’s favorite in this space. At a PEG of 0.5 and trading at a mere 8.6 times forward earnings, the average analyst’s price target on Apple indicates expectation of a price of $593.08—an upside of almost 40% from current levels. Needless to say, it’s difficult to find fault with bulls’ reasoning, as this stock is attractive from a value and income standpoint, and there’s still above-average growth in play as well.

Who’s the best of the rest?

In fourth is Whirlpool Corporation (NYSE: WHR), which makes up 5% of Sirios Capital’s equity portfolio. The consumer cyclical stock is up more than 40% over the past six months alone. The company’s ROI and ROE figures both outpace the industry. Whirlpool’s ROI is 4.84% compared to an industry average of 3.89%. Likewise, the company’s ROE is 9.50%, which is vastly higher than the industry average of 4.64%. Interestingly, the stock, too, is trading at an above-industry P/E value: 22.97, compared to the industry average of 15.83. Still, from a growth standpoint, shares are actually cheap, as they sport a PEG of 0.8.

Key Corp. (NYSE: KEY) is the third-largest holding in Sirios Capital’s equity portfolio, worth 6.27% of its total holdings. The bank holding company, which presently trades at a P/E of 11.32, is paying a 2.01% dividend, which is comparable to competitors, such as Wells Fargo. The company’s return on equity (8.44%) outpaces the industry average (8.03%), and the stock’s price is up more than 20% over the past year. Key Bank is expected to post an 11.63% EPS growth rate next year.

The second-largest holding in the Sirios Capital equity portfolio is Clearwire Corporation (NASDAQ: CLWR). The wireless broadband service provider comprises 6.64% of John Brennan’s 13F-reported stock holdings, although he has decreased his position substantially, as of late. However, heading into 2013, a total of 32 of the hedge funds we track were long in this stock, a change of 45% from one quarter earlier. The 4G-network operator’s stock is up 39% over the past year and is presently trading with expectations of an EPS growth rate of 62.48% this year.

Comerica Incorporated (NYSE: CMA), Brennan’s favorite stock, comprises a whopping 8% of the Sirios equity portfolio. Recently, Brennan increased his long position in the stock by 2%. The financial services company’s stock is up nearly 12% over the past year. Further, earnings per share growth this year is expected to come close to 30%, with five-year averages falling in the 6-7% range. Add to this, a healthy profit margin (20.46%) and an industry-pacing ROE (7.46% to 8.03%), and it’s not surprising that Brennan is bullish on the stock.

A monkey’s take

Obviously, the financial services industry is immensely sensitive to economic cycles. Thus, given the present climate, it’s understandable that investors may not be too eager to take a long position in a stock like Comerica. However, it appears to be a strong regional bank, which is appropriately valued, and the valuation argument is one that stretches back to Apple, Clearwire, Whirlpool, and the remaining members of this hedgie’s top five. If pressed to choose one out of this group, we’d go with Apple, as the bargain-bin multiples and analyst sentiment are a combination that’s too attractive to ignore.


This article is written by Ben Alberstadt and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. Meena has a long position in Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and KeyCorp. 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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