Four times a year, money managers with more than $100 million under management disclose what they've been buying and selling in the past quarter. It's a chance for private investors to get a peek at what the best in the game are doing with their money.
Apple has long been the stock most widely held by hedge funds... That's partially what drove it to more than $700 a share in September 2012.
While Apple fell to less than $400 a share last month (it's currently around $435), the iconic computer and consumer-electronics brand is still the most popular stock with hedge funds as of the fourth quarter of 2012, according to a recent Bank of America Merrill Lynch report. Insurer AIG, search-engine provider Google, and financial-services companies Citigroup and JPMorgan rounded out the top five holdings.
However, some big names are selling Apple... For example, David Tepper's Appaloosa Management owned 912,661 Apple shares in the fourth quarter of 2012... According to its Securities and Exchange Commission (SEC) filing, the fund now owns 540,000 Apple shares, a 41% reduction. Citigroup is Appaloosa's largest holding at more than 8.5 million shares.
In yesterday's Digest Premium, we discussed Tepper's current market views. (He earned $2.2 billion last year on bullish market bets.)
Julian Robertson of Tiger Management – a legendary hedge-fund manager whose numerous protégés are known on Wall Street as "Tiger Cubs" – has also soured on the company.
As recently as last November, he said in an interview with financial network CNBC that Apple "may be the greatest company in the world." And in October 2012 – when Apple was trading for more than $600 a share – Robertson told CNBC personality Maria Bartiromo that the company was a "great value at these levels."
That has changed. According to Tiger's SEC filing, the fund completely sold out of its Apple position, going from more than 100,000 shares in the third quarter of last year to zero today.
While those hedge-fund managers lost faith in Apple, David Einhorn of Greenlight Capital, who originally bought the stock around $250, is loading up.
Einhorn added 1.09 million Apple shares to Greenlight's portfolio in the first quarter. The fund now owns $1.06 billion worth of Apple, which makes up 16% of its portfolio. It was the only existing position Greenlight increased in the quarter.
As we discussed in the April 24 Digest, Einhorn had been agitating for Apple to distribute some of its massive cash hoard to shareholders.
He got his wish on April 23, when the company increased its share-repurchase program from $10 billion to $60 billion. It also raised its quarterly dividend 15% to $3.05 a share. Apple now spends around $11 billion a year on dividends, making it one of the largest gross dividend-payers in the country.
Greenlight supported the move, releasing a statement that said...
We applaud Apple's decision to borrow money and return excess capital to shareholders, an idea that was off the table only months ago. This positive development represents a more shareholder-friendly capital allocation policy and demonstrates the conviction of Apple's management and board in the company's future.
Einhorn expanded those remarks in a conference call this month. "Our thesis remains that Apple has a terrific operating platform," he said. "Its loyal, sticky, and growing customer base will make repeated purchases of a growing portfolio of Apple products."
Porter shares a similar view of Apple. In particular, its iTunes store for digital downloads is particularly important in his outlook. As he said in the April 26 Digest Premium:
The thing I like most about Apple is the moat its iTunes software and download service create. I think that's Apple's primary valuation. Users who have bought and licensed content through iTunes will stay with Apple because iTunes works best with Apple products. They've already invested heavily in content with Apple. It would be impractical to switch to another content provider. That lock-in makes Apple much more of a consumer-brand company than a typical technology company.
Apple has sold off 7% from its recent high of more than $460 a share on May 8. Porter likes Apple when it trades at or below $400 a share, where it traded between April 18-22.
Stansberry's Investment Advisory subscribers should note (with some satisfaction)… Legendary investor Warren Buffett now has a stake in natural gas infrastructure firm Chicago Bridge & Iron (CBI).
Porter recommended the engineering and construction firm to subscribers in June 2012. It was one of Porter's top ideas for investing in the boom in U.S. natural gas production. Subscribers who bought on his original recommendation are up 61% so far.
Apparently, the Oracle of Omaha agrees with Porter. Buffett's holding company, Berkshire Hathaway (BRK), just disclosed a 6.1% stake in CBI.
Shares of networking equipment and software World Dominator Cisco Systems soared as much as 14% this morning on 3.5 times its average volume. (It closed the day up 12.6%.) Why the impressive gain? The company announced quarterly earnings after market close yesterday, reporting its ninth consecutive quarter of record sales.
Cisco's fiscal third-quarter revenue hit $12.22 billion, beating expectations of $12.17 billion and exceeding third-quarter 2012 results by 5.4%. Its $2.5 billion in profits also beat market expectations and represented a 14% increase from the same period last year. Though gross margins declined a little to 63% from 63.1%, they still beat estimates of 61.9%.
Cisco's forecast was equally strong. It expects $0.50 to $0.52 a share in earnings for its fiscal fourth quarter, which ends in July. The company also forecast sales for the period would rise 4%-7% from a year ago, to reach $12.16 billion-$12.51 billion. Analysts expect $12.47 billion.
I (Dan Ferris) have been recommending Cisco to my Extreme Value subscribers since February 2011. Today, it jumped above my maximum buy price for the first time.
I hope you didn't make the mistake of thinking Cisco is a pure technology play. It's not. It's a dominate-the-market play similar to Microsoft.
Cisco doesn't have to be first at anything. It doesn't have to be the innovator. In fact, the company knew from Day 1 it couldn't possibly innovate and develop the technologies needed to grow the business on its own. It would have to acquire whatever technologies it needed to remain competitive. Cisco is now the product of more than 150 acquisitions made since the 1990s. Several acquired companies have become $1 billion-plus businesses. I'm sure it'll do that again sooner or later.
Cisco is a dynamic, responsive business. It's not a static pile of technologies. Whatever is out there in the networking world, I promise you Cisco knows about it. And it's got more than enough money and brains to acquire and develop it. Anybody who reads Extreme Value has heard me recommend Cisco a couple dozen times in the past two years. If you didn't buy it before today, don't blame it on me!
Every time I recommend a World Dominator stock, I list all the telltale traits: consistently thick profit margins… more free cash flow than it knows what to do with… a fortress balance sheet with enough cash to pay off all debt almost three times over… and billions paid out to shareholders in buybacks and dividends every year. (Since I first recommended Cisco two years ago, its dividend yield has gone from 0% to 3.3% in a market starved for income.)
It just doesn't get any easier than this. If you can't invest in a company with tens of billions of net cash and a business so boring that all it does is earn mountains of cash, maybe you shouldn't be an investor.
Yesterday, we discussed fine art as an indicator for inflation and the many records set at this week's Sotheby's auction.
The biggest sale of the night was the record $43.8 million paid for artist Barnett Newman's Onement VI. Michael Novogratz, head of alternative investment giant Fortress Investment Group, discussed the auction later that day on CNBC...
Art is 100% a bubble – I mean it has all the markings for a bubble. Prices have gone parabolic. You go to any of the art shows and you know even the cheap stuff that was $10,000 two years ago is now $80,000... These $90 million paintings, you know, they might be worth $8 [million] one day. They won't go from $90 [million] to $70 [million]. It will go from $90 [million] to $8 [million].
If you're active in the eight-figure art market, be careful... Another friend of mine – an avid art collector – said one of his contacts, an advisor to many major collectors, is telling clients to dump modern artists like Andy Warhol and Jean-Michel Basquiat.
However, as you'll see in today's mailbag below, perhaps there's a better asset class for the super-wealthy...
New 52-week highs (as of 5/15/13): Advent Claymore Convertible Securities & Income Fund (AVK), Berkshire Hathaway (BRK), WisdomTree Japan Hedged Equity Fund (DXJ), Fidelity Select Medical Equipment & Systems Fund (FSMEX), iShares Dow Jones U.S. Insurance Index Fund (IAK), AllianzGI Equity & Convertible Income Fund (NIE), PowerShares Buyback Achievers Fund (PKW), ProShares Ultra Health Care Fund (RXL), Sequoia Fund (SEQUX), ProShares Ultra S&P 500 Fund (SSO), V.F. Corp. (VFC), Constellation Brands (STZ), Coca-Cola (KO), Pepsico (PEP), Abbott Laboratories (ABT), Johnson & Johnson (JNJ), Targacept (TRGT), Automatic Data Processing (ADP), Monsanto (MON), RPM International (RPM), 3M (MMM), Corning (GLW), KBR Inc. (KBR), Chubb (CB), American Financial Group (AFG), Loews (L), Navigator Group (NAVG), Alleghany Corp. (Y), Blackstone Group (BX), Medtronic (MDT), Chart Industries (GTLS), WPX Energy (WPX), Union Pacific (UNP), Washington Real Estate Investment Trust (WRE), Wells Fargo (WFC), Wal-Mart (WMT), CVS Caremark (CVS), Walgreens (WAG), Integrated Device Technology (IDTI), Microsoft (MSFT), Altria Group (MO), and Teekay LNG Partners (TGP).
In today's mailbag, a subscriber writes in with his extraordinary insight into the world of collectible sports cars. Send your comments and stories to feedback@stansberryresearch.com.
"Art isn't the only thing that is going up in value. Or should I say the type of art that hangs on the walls.
"In June of 2011 I was recommending a friend/client buy either a Ferrari 330 GTS (100 made from 1967-68) or a 365 GTS (20 made from 1969-70). The price on the several 330s that I showed him, all in pristine restored condition, was $850,000-$1,000,000; the 365 was $1.2. In late April, a beautifully restored 330 GTS turned at auction for $1.96 million, and the 365 that we passed on is probably now at $2.2 or higher.
"When that client was groaning over not taking my advice, I had to remind him a few months later that we bought a 500 Superfast for around $1.1. – This Ferrari was built from 1964-66 (36 made). – Around 8 months later, I was speaking with a dealer friend of mine who offered $1.7 for the car. My client declined to sell.
"During the collector car auction week in Arizona in January, I was with several well connected friends and dealers, and one of them was on the lookout for a 250 Series I Cabriolet. Ferrari made 40 between 1957-59 (it is arguably one of the most beautiful street cars ever made). A friend I have known for many years bought one in the 1970s, when he and his wife decided they would use her school teacher salary to purchase it. The person looking for the car asked me to call him, and was ready to offer in the mid-3s for the car.
"I already knew the answer I would get, so when I put out the offer and got the expected 'no,' the buyer said for me to ask him to 'name his price.' When I didn't get one, I put 5 on the table, figuring we had to start somewhere, and it was declined. If it had been accepted, the buyer would have probably pulled the trigger and done the deal.
"And FYI: there is a market that has gone up longer than gold, and it is Ferrari 250 GTOs. They are very near the top of the automotive pecking order, and just 36 were made from 1962-64 (Ferrari won 3 world championships with the model). The GTO looks absolutely stupendous, and is one of the two best, most invigorating cars that I've driven. A friend who has more money than god but lives completely off the radar bought one in 1992 for $3.5 million; last year he turned down over $50. 250 GTOs have not seen a price decrease in 20 years, even when the car market took a hit in 2008-09.
"I've written about the accelerating trend in the high-end collector cars for the past three years. First they were a great place for the asset diversification, then they became viewed as an asset class, much like fine art. Now I firmly believe they are a form of currency, for like numismatic gold coins they can be moved anywhere in the world, and have a perceived value by those in the know. And much like gold coins, Ferraris too are graded at certain meets (perfect is 100 points) so anyone anywhere in the world can have an idea of the car's condition.
"When I look in astonishment at the price escalation, and how in 'automotive universe terms' a lot of them don't make sense, I always counter that by reminding myself in the 2 years since that client passed on the 330 GTS the Fed has printed 2 trillion more dollars. If you have something that has a widely acknowledged intrinsic value by global group of wealthy people of which a maximum of only 100 exist, and 2 trillion of another thing has been created with no effort whatsoever in the past two years, the relationship between those two items HAS TO change. And it has.
"I think Ferraris are due for a correction, for they have run awfully far recently, but if you buy the right Ferrari with a 5-10 year (or longer) time horizon, you are going to do just fine. (And no, I do not own any Ferraris – most unfortunately. But at least I get to play with them!)" – Paid-up subscriber Winston Goodfellow
"Where can you buy 'physical' gold?" – Paid-up subscriber Michael Burgess
Goldsmith comment: We recommend you buy physical gold (be it bullion or collectible coins) through Van Simmons at David Hall Rare Coins (800-759-7575) and/or Rich Checkan at Asset Strategies International (800-831-0007). Please note, we receive no compensation for recommending their services...
Regards,
Sean Goldsmith and Dan Ferris
Miami Beach, Florida and Medford, Oregon
May 16, 2013
Turbulence in gold markets hasn't kept Paul Singer, founder of hedge fund Elliott Management, from advocating its benefits to clients.
The hedge fund expects gold's appeal to increase as central banks continue weakening paper currencies in an attempt to boost economic growth. That will leave gold as the best store of value and a must-own commodity.
Like Singer, renowned real estate investor Sam Zell sees hard times ahead as the current market bubble – fueled by low interest rates and central-bank printing presses – eventually deflates.
"Right now, you are buying at an all-time high" if you're buying equities, Zell said at the Las Vegas event this month. "There are times when stocks hit a high and then go higher. But that's when you have a good economy. The current euphoria in the stock market will be adjusted. I hope that's all that happens."