Apple takes bite out of famed hedge fund managers

A top holding of David Einhorn and David Tepper, the stock is trading close to its 52-week low.

By GuruFocus.com Feb 27, 2013 1:50PM
The Apple Inc. logo is displayed on the back of the new MacBook Pro David Paul Morris, Bloomberg via Getty ImagesInvestors interested in the strategies of David Einhorn and David Tepper may want to note that their top holding, Apple (AAPL), is trading close to its 52-week low, and less than the average price either of the two managers paid for their shares.

 David Einhorn, famous for the performance of his Greenlight Capital hedge fund, began buying the company in the second quarter of 2010, reporting in his annual letter that he paid an average purchase price of $248.09 per share. At the time, Einhorn noted his interest in its $40 per share in cash, the fact that it had not penetrated its markets, and its potential, albeit slower, future growth.

After numerous purchases since, he reported owning a holding of 1,307,006 shares at the end of the fourth quarter. The size places it at the top of his holdings list, comprising 10.9% of his entire stock portfolio.

The share price Wednesday of $444.93 is approximately 22.9% lower than the average cost of all of Einhorn's shares, $577.16, according to his Top Bargain Candidates of David. It is also close to a 52-week low share price of $439.88, according to GuruFocus data, after tumbling close to 36% off its all-time peak of $705.07 reached in September.

Einhorn took the stock's fourth-quarter fall as an opportunity to add to his position, purchasing 216,116 shares.

Apple's cash position since Einhorn purchased has increased to approximately $65 per share, which Einhorn believes should be more generously shared with shareholders than the $2.65 per share quarterly dividend the company initiated in the third quarter of 2012. Last week he won a lawsuit against Apple to block it from bundling a referendum on requiring a shareholder vote before issuing preferred shares with other proposals into one vote.

'A spokesman for Greenlight said the company was 'pleased' with the decision and looked forward to Apple considering its proposal to return more cash to shareholders," the Wall Street Journal reported.

David Tepper, founder of Appaloosa Management, returned 30% for 2012, making him one of the top-performing hedge fund managers last year. Apple was his firm’s largest stock position since the first quarter of 2012. Then, in the fourth quarter, he added 391,473 shares to the holding, bringing its total size to 912,661 shares, and 10.5% of his portfolio.

Tepper entered Apple in early 2011 when its market price was $345.68, on average. His average purchase price for his fourth quarter shares was $577.16, which is 22.9% higher than Apple’s current $444.93 share price, according to his Top Bargain Candidates.

Only one other stock in Tepper's fund, Freeport McMoRan Copper & Gold (FCX), has a current market price lower than his average purchase price of the fourth quarter.

Tepper said in a Bloomberg interview in January that he is very positive on the economy:

"Everything lines the right way. I am saying that for someone in my office because we play Scrabble and he hated the word I used last night…If you look at the markets, they are trading at a really low multiple. 13 handle this year, 11 handle next year on the S&P. You have unprecedented money creation here and you have Japan who went to 2% target last night. You basically have the competing assets. Junk, I rallied already 40 basis points this year. 567 or some ungodly number like that. If you look at the multiple on that compared to the alternatives to anything in credit, there's nothing close. There's never been this big of a gap in the history of my life at least."

Apple is also trading at relatively low multiples, with a P/E of 10.2, close to a 10-year low, a P/B of 3.28 close to a five-year low and P/S of 2.6 close to a three-year low.

Shareholder meeting
In the fourth quarter, Apple reported increased quarterly revenue and net profit, while its gross margins decreased to 38.6% from 44.7% in the fourth quarter of 2011. Sales were also at records for its iPhone and iPad, as sales of older products, such as the Mac and iPod, were lower than the previous year.

Tim Cook, Apple's CEO, will face shareholder questions about its $137.1 billion cash stockpile and its future products in at its annual meeting later today.

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