American International Group, Inc. (NYSE:AIG) is Tilson’s top stock holding per his latest 13F filing after he increased his stake 1,500% last quarter. With plans to sell over 90% of its airline-leasing unit – ILFC – we believe the insurer is taking positive steps to focus more on its core operations. AIG appears undervalued by various standards, trading at a P/E of under 3x, which is much lower than the industry average of 16x earnings.
On a P/B basis AIG is only at 0.6x, where the industry is 0.9x. The insurance giant also trades at a mere $35, while its book value comes in around $70. Beyond just the undervalued shares is the fact that AIG has very impressive growth prospects. This includes the recent joint venture to sell insurance products in China. This in part will help drive earnings over the next five years to meet the sell-side’s expected 18% annual growth rate.
The U.S. Treasury’s interest in AIG has also declined rather steadily since the start of the year, and now rests at 22%. The federal government’s $18 billion sale in September moved its $182 billion bailout into positive territory for first time since 2008. Billionaire George Soros also took notice of AIG last quarter, taking a new position that made the insurer Soros’ top stock holding (check out George Soros’ latest picks).
After Tilson increased his stake by 1,750% last quarter, Berkshire Hathaway Inc. (NYSE:BRK.B) is now his second largest stock holding and makes up nearly 4.5% of his 13F portfolio. Berkshire is expected to grow revenues by upwards of 7% by the end of this year, driven by solid growth in Berkshire’s largest unit – insurance.
Organic revenues from the insurance unit are expected to grow by 8% this year, due to market share gains via Geico. Given Berkshire’s conglomerate structure, it is virtually impossible to ascribe a peer to the company, but it does trade in line on a P/E basis with its own historical average.
On the surface, Berkshire might not appear to be a value-play in the conventional sense, but we believe that the company is poised to make another key acquisition, having amassed almost $50 billion in cash over the past few quarters. Billionaire Warren Buffett is one of the top managers that we track and still has an integral part in the company’s management process(check out Warren Buffett’s newest picks here).
Howard Hughes Corp (NYSE:HHC) is another stock Tilson increased his stake in last quarter, upping his position by 600%. The stock is now his 3rd largest 13F holding. Howard Hughes is a real estate investment company that develops various real estate projects from commercial to residential. Howard Hughes completed the spinoff of General Growth Properties in 2010, and has since been one of billionaire Bill Ackman’s favorite picks. Ackman is also the chairman of the Howard Hughes board of directors. Tilson puts the valuation for Howard Hughes as high as $125 per share after visiting the real estate company’s various properties.
Delia’s, Inc. (NASDAQ:DLIA) is a micro-cap stock that operates in the retail segment, and is Tilson’s 4th largest 13F holding. Delia’s most recent earnings showed a net loss per share of $0.06, a large improvement from the loss of $0.14 per share a year ago for the same quarter. The retail company is focused on two primary lifestyle brands that target teenage girls and young women. With a 30x P/E, Delia is above its peers, but we believe this is warranted given the specialty retailer’s above-average expected growth. Delia has a long-term expected EPS growth rate of 14%, above both Cato (10%) and Bebe Stores (0%), two of its closest competitors.
Last but certainly not least, Tilson upped his stake in Apple Inc. (NASDAQ:AAPL) by 1,000% last quarter. The stock rounds out his top five. Apple is expected to see solid revenue growth over the next few years as its products continue to gain market share. Apple continues to generate strong cash flow, ending last quarter with over $120 billion.
Its newest iPhone and iPad should help the tech giant continue to exhibit strong growth through the holiday season. Apple’s chief advantage is its ability to undergo continuous product iteration, which should help drive its industry leading long-term earnings growth rate of 20%.
From a valuation standpoint, Apple still trades well below its tech peers. Apple’s trades at 12x trailing earnings, while Google is at 21.5x and Microsoft is at 14x. The computer hardware industry’s average trailing P/E is also well above that of Apple, at 25x. The Cupertino-based company is also one of the ten tech stocks hedge funds loved at the end of last quarter (check out our entire Top Ten).
In short, Tilson has picked some well-known value plays, including AIG, Apple and Berkshire. All three of these picks are industry giants that are under-appreciated at the moment. Two lesser-known value picks that also present solid growth opportunities are Howard Hughes – a great play on the rebounding real estate market – and Delia’s – a solid opportunity in the apparel industry.
