Billionaire Julian Robertson’s Top Stock Picks

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We track quarterly 13F filings from hundreds of hedge funds and other notable investors, including legendary investor Julian Robertson (formerly of Tiger Management). We’ve found that the information included in 13Fs can be useful in developing investment strategies (for example, the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year), and of course it can also be useful to go through the favorite stocks of top managers and use these as a source of initial investment ideas. Read on for our quick take on Robertson’s five largest holdings as of the end of March or see the full list of his stock picks.

The 13F shows that Robertson increased his stake in Google (NASDAQ: GOOG) by 19% to a little over 34,000 shares during the first quarter of 2013. According to our database of 13F filings, Google was the second most popular stock among hedge funds during the quarter (check out our full top ten list). The stock currently trades at 16 times forward earnings estimates, taking into account analysts expectations of a strong improvement in EPS over the next year and a half; net income grew 16% in the first quarter of 2013 versus a year earlier.

The billionaire initiated a position of about 850,000 shares in H&R Block (NYSE: HRB), which we’ve noticed picked up a good deal of attention from hedge funds during the quarter. The sell-side is also bullish on the tax preparation company: in the current fiscal year, they are looking for $1.89 in earnings per share which implies a P/E multiple of 15. We would be a bit concerned, however, that H&R Block’s focus on physical locations (still responsible for the majority of business) could suffer from competition from tax software companies and services.

Mastercard (NYSE: MA) was another of Robertson’s top picks. Last quarter the credit card company experienced an 8% increase in revenue compared to the same period in the previous year, with earnings rising 12%. However, the market has already priced high growth into the current stock price: Mastercard’s trailing and forward earnings multiples are 25 and 19, respectively. That’s a pretty aggressive valuation, even with the company’s recent performance, and we think that we’d be more interested in looking at competitors such as Discover and Capital One.

Robertson disclosed ownership of about 580,000 shares of HCA Holdings (NYSE: HCA), a large owner of hospitals. While recent financial performance at HCA has been weak, the industry in general carries fairly low multiples and this particular company is valued at 13 times its trailing earnings. Leverage is high, which likely provides a lot of explanation for why a hospital stock (we’d expect the hospital business to have little dependence on broader economic conditions) has a beta of 1.9. It might be worth comparing HCA to its peers to find healthier alternatives in the industry.

According to the filing, the billionaire kept his holdings of Valeant Pharmaceuticals (NYSE: VRX) about constant between January and March at close to 290,000 shares. Valeant is a pharmaceutical company with a market capitalization of $27 billion. While revenue rose 25% last quarter compared to the first quarter of 2012 on strong product sales, Valeant was still unprofitable and in fact its pretax losses were much larger than they had been a year ago. Despite this, the stock price has risen 86% in the last year.

We still think that we would avoid Valeant, and as we’ve suggested we wouldn’t be comfortable buying Mastercard or H&R Block at this time either. HCA might be worth a look, but we suspect that there are other stocks in the industry with similarly cheap multiples and stronger recent performance. As for Google, we certainly see the company continuing to grow its earnings but the valuation is high enough that we aren’t sure that it still makes for a good growth pick. 

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This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in Google. The Motley Fool recommends Google and MasterCard. The Motley Fool owns shares of Google and MasterCard. 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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