Tiger Cub Lee Ainslie’s Long-Term Picks

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One common objection to using hedge funds’ 13F filings to help find potential stock picks is that the information in these filings is a bit old; in most cases, the most recent wave of 13Fs disclose many of a fund’s long equity positions as of the end of March. However, Insider Monkey has found that it’s possible to use these filings to help develop investment strategies.

The most popular small cap stocks among hedge funds, for example, generate an average excess return of 18 percentage points per year. By tracking quarterly filings in a database, we can also see which stocks an individual manager has owned for a long period of time, meaning it is more likely that they are still in the portfolio.

Here are the five largest holdings from Lee Ainslie’s Maverick Capital’s most recent 13F which the fund had at least $140 million invested in at the end of March 2011 (or see the full list of Maverick's stock picks over time).

Three technology stocks

Ainslie and his team increased their holdings of Apple, a stock they have owned for the last couple years, by 27% during the first quarter of 2013. During Q1, Apple had regained its place as the most popular stock among hedge funds (find more stocks hedge funds loved).

Earnings remain down from levels a year ago despite higher sales, as the company’s margins have decayed. Apple does have a sizable cash hoard (its dividend yield is close to 3%) and its market capitalization -- which includes this cash -- comes out to 10 times its trailing earnings.

In Q1 2011, Qualcomm (NASDAQ: QCOM) was Maverick’s largest holding; at the beginning of April, the fund’s 4.4 million shares made it the second-largest position by market value. Qualcomm’s fiscal Q2 ended in March, during which both revenue and income from continuing operations were up about 20% versus a year earlier.

Wall Street analysts expect earnings to increase over the next several years. Qualcomm’s trailing and forward P/Es are 17 and 12, respectively, and the five-year PEG ratio is 0.8. Given those metrics, further research on the company would seem warranted.

Maverick had 8.5 million shares of NetApp (NASDAQ: NTAP) in its portfolio at the end of Q1 of this year. The $15 billion market cap enterprise networking and data storage systems company had its fiscal year end in April. With revenue not increasing by much compared to the previous fiscal year, and costs rising, NetApp recorded a considerable decline in both net income and earnings per share (offsetting the effect of share repurchases). NetApp does still have considerable cash on hand, and analysts are optimistic enough about next year that the forward P/E is 13.

Two more of Ainslie’s long-term picks

The fund reported a position of 7.2 million shares in $17 billion market cap hospital company HCA Holdings (NYSE: HCA). Higher costs pushed HCA’s net income down 36% in its last quarterly report compared to the first quarter of 2012, and revenue was stagnant.

Between this weak performance and generally low multiples for the hospital industry, HCA is arguably cheap -- it is valued at 12 times trailing earnings. However, investors should wait to see the company’s financials stabilize before considering it as a potential value play.

Dollar General (NYSE: DG) rounds out our list of Ainslie’s long-term picks. As with other dollar stores and discount retailers, Dollar General has little dependence on the overall economy with a beta of 0.1. While growth has not been high, the company’s reports do show moderate improvements on both top and bottom lines.

However, markets seem to be pricing in much better future performance than what the company has done recently as the current stock price makes for 19 times Dollar General’s trailing earnings. That seems a bit pricey given the recent financials.

Conclusion

As a result, it might be better to look at Dollar General’s peers if an investor is interested in the industry, and the same might be more or less true for NetApp and HCA even with those stocks’ earnings multiples being arguably low as they have struggled recently.

Qualcomm looks like it could be a potential “growth at a reasonable price” pick, and while investors shouldn’t depend on Apple’s net income actually growing in the near future, the current valuation seems to already include some expectation of further declines and so, it could be worth keeping an eye on.

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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 Qualcomm. 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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